Global credit rating agency Moody’s Investors Service affirms the view that the Philippines will be one of the most vulnerable emerging economies if the United States raises its trade barriers on exports of services, first expressed by a London-based think tank.
Moody’s, in a report released Wednesday—“Asia Credit 2017 Outlook: Challenging Global Environment to Test Asia’s Robust Credit Fundamentals”—said it expects global credit conditions to remain uneven in 2017.
The report warned that in the next 12 to 18 months, existing and emerging risks could place downward pressure on Asian growth prospects and creditworthiness.
The risks cited included China’s growth, reform and stability objectives; disorderly response to Fed tightening, involving a sharp fall in capital inflows into Asia; politics, developments in the European Union, including Brexit and a busy 2017 election schedule; and elevated leverage in many Asian economies.
Moody’s pointed out that in particular, the Philippines faces one emerging risk—the potential changes to US trade policy and rising protectionism globally.
Significantly reduced US engagement in global trade under the Trump administration would be a dramatic divergence from the Obama policy, and could pose downside risks to the US’ major trade and investment partners, it said.
“During his presidential campaign, Donald Trump promised to renegotiate trade relationships with the country’s largest trade partners, including China, and to increase trade barriers to protect US industries and labor markets from foreign competition,” it said.
“India and the Philippines (Baa2 stable) would be the most vulnerable if the US were to tighten rules on service outsourcing,” it said, without elaborating.
Late last week, London-based research consultancy firm Capital Economics said in a similar report the Philippines stood out as one of the most vulnerable emerging economies to the impact of President Donald Trump’s “America First” policy because of its direct trade links to the US.
Capital Economics said although the Philippine economy does not rely much on its goods exports to the US, other business sectors that bring in significant revenues to the country such as business process outsourcing (BPO) and Filipino workers’ remittances could get hit.
A number of outsourcing companies located in the Philippines have put expansion plans on hold, while some are reportedly already drawing up precautionary plans to relocate some operations back to the US, the think tank said, adding that there were also fears over the outlook for remittances.