‘Trumponomics’ seen a threat to PH growth

The Philippines remains on a solid macroeconomic footing that will enable it to grow by 6.3 percent this year but vulnerability to “Trumponomics”—or policies to be implemented by newly inaugurated US Ppresident Donald Trump —is high, investment house Nomura said.

In a research note dated Jan. 27 written by economists Euben Paracuelles, Lavanya Venkateswaran and Brian Tan, Nomura said navigating the rough seas of geopolitics posed the biggest risk to an otherwise strong macroeconomic outlook for the Philippines.

The research said the Philippine economy was starting this year with a strong position, supported by structural reforms that were boosting investment spending that, in turn, would push potential growth higher.

“We think reforms will continue under the administration of President Duterte, particularly on reducing corruption and red tape and implementing tax reforms designed to support an ambitious infrastructure agenda. FDI (foreign direct investment) inflows are also rising, supported in part by a full liberalization of the foreign ownership in the banking sector,” the research said.

Under its baseline scenario, Nomura expects some moderation in Philippine gross domestic product (GDP) growth this year to 6.3 percent from 6.8 percent in 2016, as the boost from the 2016 presidential election fades but partly mitigated by more progress on infrastructure spending.

Nomura also cited risk of GDP growth easing albeit to a still “relatively resilient” 6.1 percent amid increased fiscal stimulus, with the government running a larger-than-expected fiscal deficit breaching 3 percent of GDP versus an assumed cap of 2.7 percent.

Nomura also cited a number of channels through which the Philippines could be affected by “Trumponomics.”

“The Philippines runs a merchandise trade surplus with the US of 0.7 percent of GDP. If the US tightens its immigration policies—which leads to fewer migrant workers —this could impact remittances inflows back to the Philippines,” the research said.

The research pointed out that the US was hosting 34.5 percent of the total overseas Filipino population, which it estimates to account for about 31 percent of total worker remittances.

“Trump’s commitment to bring jobs back to the US may also affect the increasingly important BPO (business process outsourcing) sector, which caters mostly to US corporates,” Nomura said.

Foreign revenue from the BPO sector has been projected to equal total overseas Filipinos’ remittances or about 9 percent of GDP in the next few years.

“Most importantly, regional security issues related to the South China Sea puts the Philippines on the front line. The potential for further disputes between China and the Philippines may have eased with the Duterte government seeking stronger economic ties with China,” the research said.

But while President Trump’s stance on this issue remained unclear, the research noted how his Cabinet nominees have said that China should not be allowed access to disputed islands.

“We think the current account could also dip into a deficit, as both revenues from the business process outsourcing sector and worker remittances could slow. Headline inflation will likely ease marginally relative to our baseline, given mildly lower global oil prices, but will nevertheless remain above the mid-point of the central bank’s 2-4 percent headline inflation target.”

Nomura is thus expecting the inflation-targeting Bangko Sentral ng Pilipinas to raise key interest rates by a total of 50 basis points this year. —DORIS DUMLAO-ABADILLA