‘Trump 2.0’ may hurt Philippine economy, according to Nomura

The protectionist policies of a potential Donald J. Trump presidency could hurt the Philippine economy through lower dollar remittances and revenues in the service sector, according to Nomura Global Markets Research.

“We remain of the view that, similar to Trump’s first term, the Philippines will be among the most vulnerable through various channels,” it said in a report.

Nomura said a Mr. Trump victory could dampen the Philippines’ economic growth. “Overall, we estimate through these channels GDP growth could be lower by 0.2 percentage point (ppt) than our baseline, though this is still manageable as we forecast GDP growth of 6.1% year on year for 2025,” it added.

The Philippine economy grew by 6.3% in the second quarter. The government is targeting 6-7% growth this year.

“The direct exposure comes from the country’s goods trade surplus with the US, which has risen in the last few years, and exports are likely to be hurt by the 10% tariffs proposed by Trump,” Nomura said.

Mr. Trump, the Republican nominee, has been loud about his intention to go big with trade restrictions, vowing to impose tariffs of 60% or higher on all Chinese goods. He has also floated the idea of a 10% universal tariff, according to Reuters.

The US remained the top destination for Philippine-made goods in June, with exports valued at $897.8 million or 16.1% of the country’s total, according to data from the local statistics agency.

The Philippines’ business process outsourcing (BPO) sector could also be hurt by Mr. Trump’s policies, Nomura said.

“In addition, the services surplus is now slightly larger than the goods surplus at 1% of GDP (gross domestic product), partly reflecting the fact that most of the country’s BPO sector caters to US companies,” it said.

“While Trump has not been explicit about ‘bringing back jobs to America,’ the risk is similar policies might affect BPO revenues, which was clearly the case in his first term — services exports growth to the US [was] halved to 5.1% year on year in 2017-2019 versus the prior years.”

The information technology and business process management industry booked a USD 35.5-billion revenue last year. This year, the sector’s revenue is projected to hit $40 billion.

Remittances, which are a key contributor to the Philippines’ foreign exchange coffers, could also be hit by a Trump win.

“By the same token, remittance growth also slowed during Trump 1.0, suggesting that a tightening in US immigration policy might affect workers’ remittances from the US which are even more sizeable (3.1% of GDP),” Nomura said. 

Cash remittances jumped by 2.9% year on year to $16.25 billion in the first half, data from the Bangko Sentral ng Pilipinas (BSP) showed. The US accounted for 40.9% of the total.

“Among the less export-oriented economies, the Philippines does not have a similar cushion and instead will be at risk from various channels, including the impact on workers’ remittances from a possible tightening of US immigration policy as well as the outsourcing sector,” Nomura said.

It also cited potential geopolitical tensions between China and the Philippines due to the “lack of security support from the US under Trump.”

“An indirect channel is the impact of a possible rise in geopolitical tensions in the South China Sea if the US, which is the country’s strongest ally, provides less regional security and reduces its military presence under Trump.”

On the other hand, Nomura said the Philippine central bank’s easing cycle is unlikely to be affected.

“Meanwhile, a pause in the Fed’s cutting cycle to assess the impact of Trump’s tariffs on US inflation is unlikely to derail BSP’s cutting cycle, which is already underway and should be completed by the first half of 2025 based on our forecasts, unless the tariffs are implemented much earlier,” it added. — Luisa Maria Jacinta C. Jocson