Moody’s: PH growth vulnerable to outcome of elections in the US

Another shift in the political landscape, this time in the United States, is seen adversely affecting the Philippines’ economic buffers, specifically its business process outsourcing industry and cash remittances flows, according to debt watcher Moody’s Investors Service.

In a report entitled “US Post-Election Shift in Trade Policy Would Affect High-Value Manufacturers Most,” Moody’s said campaign proposals already “point to a potential period of less proactive foreign engagement over time, whichever candidate wins,” referring to Democratic Party candidate Hillary Clinton and Republican bet Donald Trump who are both vying for the most powerful post in the world. The US presidential elections will be held on November 8.

Moody’s said a status quo in trade relations might continue but there could also be a “gradual retrenchment from trade and investment ties, and curbs on immigration. These scenarios would have ramifications beyond US borders.”

The protectionist policies of both candidates could be detrimental to the BPO sector, which has heavily supported the Philippines’ labor market in the past few decades, it added.

“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.

With both candidates promising to keep investors in the US, “India and the Philippines would be exposed to any policies that disincentivizes foreign sourcing of business services,” it added.

With regard to foreign direct investments, Moody’s said “a more insular climate in the US could crimp FDI flows as expansion of production facilities [refocuses] on domestic locations,” but noted that “the very small stock of US manufacturing FDI in Asia-Pacific implies negligible exposure in this respect.”

Immigration is also another topic that could decide the US elections and remittances to Asia could weaken if rules were changed.

“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,” Moody’s said.

Nonetheless, Moody’s said the country currently has a current account surplus, which “would provide buffers against any marked weakening in remittances.” Remittances from the US accounted for 3.3 percent of the Philippines’ gross domestic product (GDP) and 34 percent of total remittance inflows in 2015.

Remittances also accounted for 9.2 percent of the Philippines current account receipts in 2015.

Together with Vietnam, whereby remittances from the US accounted for 3.8 percent of its 2015 GDP, “the two countries’ current account surpluses and ample foreign-exchange reserves would buffer a potential loss in remittance revenues.”