Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. on Tuesday warned against the risks of ‘new mediocre’ in advanced economies and the rising US protectionism.
Tetangco, speaking during the 12th Asean Finance Ministers Investors seminar in Cebu City, said while he was expecting Asia to be resilient against global shocks, a policy misstep could also hurt the region.
“A bolder vision for the region sees it as becoming a key pillar of growth for the global economy in the years to come. However, there is the other possibility to consider,” he said.
“Emerging challenges in the global economy will continuously test the resilience of Asia. Asia’s ability to withstand these shocks will crucially depend on the structural reforms and proactive policies that it will undertake in key areas,” Tetangco said.
Tetangco warned that a “misstep in this direction and Asia may also become the new mediocre.”
He said whether Asia would follow the advanced economies’ ‘new mediocre’ or not would also depend on how the region would overcome the risks and/or take advantage of the opportunities.
He said some of the risks included the growing US protectionism, financial spillovers, the ‘middle income trap’ and demographic issues.
Tetangco said Asian countries differed in terms of preparing for uncertainties emanating from US protectionism.
“For some, like the Philippines domestic aggregate demand has been the main driver of growth for years now. For others, like China, they have moved away from export-oriented to more service-oriented growth. In the meantime, intra-Asean trade has been increasing. In the case of the Philippines, Asean [as an aggrupation] has moved to become our number 1 overall trading partner,” he said.
He also said that a disorderly reaction to possible US interest rate hikes and broader uncertainty about a synchronicity of monetary policies in advanced economies could lead to capital flow reversals and spikes in asset price volatility in Asian emerging markets.
He said ironically, Asia’s resiliency during the global financial crisis was founded on another crisis. He said the 1997 Asian financial crisis shaped the key financial, structural and institutional reforms that defined Asian economies in the decade following the crisis.
He said in the decade that followed the Asian financial crisis, the Asean and Asean+3 countries adopted four key regional initiatives aimed at strengthening the region’s capability to prevent and manage future financial crises.
These are Asean Surveillance Process, Asean+3 Economic Review and Policy Dialogue and Chiang Mai Initiative and Asian Bond Market Initiative.
“Clearly, the reforms, post AFC, have served Asia in good stead,” Tetangco said.
