The Philippines is one of the Asia Pacific economies bound to get hit by the impact of possible shifts in foreign policy in the United States after the November elections, credit watchdog Moody’s Investors Service said in a report released Friday.
Nomura shares the same view, betting the Philippines would lose the most from a Donald Trump victory.
Campaign proposals ahead of the US presidential election on November 8 point to a potential period of less proactive foreign engagement over time, whichever candidate wins.
“Outcomes could range from a continuation of the status quo to a gradual retrenchment from trade and investment ties, and curbs on immigration. These scenarios would have ramifications beyond the US borders,” Moody’s noted.
In general, credit implications are likely to be limited. For instance, Asia Pacific sovereigns’ direct exposure to a potential slowdown in US imports is generally small.
However, the debt watcher noted Asian economies whose exports to the US are focused on high value-added manufacturing products are more vulnerable to policies that disincentivize foreign sourcing of business services.
“US policies could incentivize onshoring—the repatriation of jobs by overseas-based suppliers back to the US—and a focus on domestic production and sourcing in response to claims that increased openness to trade has led to job losses in some sectors and regions of the US,” it said.
Asia Pacific countries that have the largest trade surpluses with the US could also be on the receiving end of political criticism. China and, more recently, Korea have borne the brunt of such attention in the past.
Moody’s said the Philippines and India “would be exposed to any policies that discourage US businesses from foreign sourcing of services.”
“India and the Philippines would be most vulnerable if the US imposed higher tariffs or tightened rules on outsourcing, given that their service revenues are more concentrated in information technology and telecommunications, some of which could, in principle, be sourced from the US,” it said.
Malaysia, Taiwan and South Korea, on the other hand, would be most vulnerable to efforts to repatriate high value-added manufacturing jobs.
Moody’s said remittances to Asia could weaken if the US tightened immigration rules. “Immigration has been another major focus of the US election campaign. A tightening in immigration rules in the US would over time dampen growth in remittances to other countries, which are significant for some Asia Pacific sovereigns,” it said.
“However, the Philippines and Vietnam whose remittances receipts from the US are largest in relation to the size of their economies also run current account surpluses that would provide buffers against any marked weakening in remittances inflows,” it said.
In Asia Pacific, Moody’s noted remittances from the US are largest for the Philippines and Vietnam at 3.3 percent and 3.8 percent of gross domestic product (GDP), and 9.2 percent and 4.1 percent of current account receipts, respectively, in 2015.
“The two countries’ current account surpluses and ample foreign-exchange reserves would buffer a potential loss in remittance revenues,” it added.
PH to lose the most
Meanwhile, Nomura said a Trump presidency would no doubt hurt Asia’s gross domestic product growth and could ultimately drive cost-push inflation, impart smaller trade surpluses and looser macroeconomic policies.
“In Southeast Asia, we believe the Philippines’ economy stands to lose the most if Mr. Trump wins the presidency. While it remains unclear if he will follow through with his protectionist campaign rhetoric and broaden it to include other smaller countries in Asia, there are a number of channels through which the Philippines could be affected,” it said.
If US immigration policies tighten, leading to fewer migrant workers, this could impact remittance inflows back to the Philippines, it noted, pointing out that the US is host to 34.5 percent of the total overseas Filipino population, and estimates accounts for about 31 percent of total worker remittances.
“Mr. Trump’s goal of bringing jobs back to the US may also affect the increasingly important business process outsourcing (BPO) sector, which caters mostly to US corporates and now brings in FX revenues that are projected to equal the size of total worker remittances (about 9 percent of GDP) in the next couple of years,” Nomura said.
The Philippines is starting from a strong position with a robust growth outlook, due in part to progress in reforms over the last few years which Nomura believes will continue to support domestic demand amid a potentially difficult global backdrop.
“As such, the economy is in a position to be able to weather such shocks, even if not fully mitigate it. In particular, the new government is planning significant fiscal expansion to support public infrastructure spending,” it said.
“If supply-side inflation pressures emanate from lower global supply of food products, Bangko Sentral ng Pilipinas has ample scope to address second-round inflationary effects, with a new monetary policy framework already in place and room to hike policy rates as necessary,” it added.