Harris presidency more beneficial to PHL economy

A Kamala Harris presidency would be more beneficial to the Philippine economy, analysts said, noting the potential impact on monetary policy, trade and other economic indicators.

“The implications of a Trump or Harris presidency on the Philippines can vary significantly, particularly in terms of interest rates, foreign exchange, and the overall economy,” Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., said.

Republican candidate Donald J. Trump faces Vice-President and Democratic nominee Ms. Harris in the US presidential elections on Nov. 5.

More than 75 million Americans have already cast their ballots, according to the Election Lab at the University of Florida, Reuters reported.

Mr. Ravelas noted the impact of the US elections on the US Federal Reserve and possibly the Philippines’ own monetary policy.

“A Harris presidency is expected to maintain a more stable economic policy, similar to the current administration. This could lead to a more predictable interest rate environment, with the US Federal Reserve potentially continuing its rate-cutting cycle,” he said.

The Bangko Sentral ng Pilipinas (BSP) kicked off its easing cycle in August, delivering a total of 50 basis points (bps) worth of rate cuts since then. BSP chief Eli M. Remolona, Jr. has also signaled further easing moving forward.

The Fed likewise began cutting interest rates in September, its first time reducing rates in four years. It delivered a larger-than-expected half-percentage-point cut, bringing the Fed funds rate to the 4.75%-5% range.

Markets are anticipating further rate cuts from the US central bank, but at a more modest pace of 25 bps.

On the other hand, Mr. Ravelas said a Trump win could “lead to higher interest rates in the US due to potential inflationary pressures from increased fiscal spending and tariffs.”

The former US President plans to implement stringent trade restrictions including a 10-20% universal tariff on all imports as well as a tariff of 60% or higher on Chinese goods.

On the other hand, Ms. Harris has opposed the concept of a universal tariff, instead favoring “strategic tariffs to help workers or punish trade adversaries,” Reuters reported.

The Philippine economy is seen to more likely thrive under a Harris presidency amid her less restrictive trade policies, analysts said.

“The Philippine economy could benefit from policy continuity under Harris. Her administration is likely to focus on strengthening economic ties and maintaining stable trade relations, which could support Philippine exports and the business process outsourcing (BPO) sector,” Mr. Ravelas said.

“A Trump presidency could introduce more economic uncertainty and potential challenges for the Philippines, while a Harris presidency might offer more stability and continuity in economic policies.”

ANZ Research said that while both candidates’ platforms are restrictive on trade with China, each have different approaches.

“Trump’s stance tends to be ‘American only,’ while Harris will likely extend Biden’s ‘friend shoring,’” it said in a report.

Data from ANZ showed that during the Trump and Biden terms, the United States imported less from mainland China and more from the rest of Asia. However, a second Trump term would “likely target Asia more broadly.”

“Biden’s administration has maintained the tariffs imposed under Trump. He also strengthened export controls,” it said.

“This policy mix has changed global and Asian trade patterns. Between June 2018 and September 2024, US goods imports from mainland China slumped by 20%. The share of US total imports from mainland China fell 8% to 14%.”

ANZ noted that Ms. Harris is likely to favor the Indo-Pacific Framework proposed by Mr. Biden, while Mr. Trump is not in support of multilateral agreements, citing his withdrawal from the Trans-Pacific partnership.

“Trump’s current campaign proposals are more severe than the actual trade policies he implemented as president. If his current proposal of a 60% tariff on all Chinese imports and a 10-20% universal baseline tariff become a reality, the average US tariff would rise to 17.7%, a level not seen since 1934,” ANZ said.

This would have consequences such as higher prices for US consumers; margin compression for Chinese exporters and US importers; as well as a negative effect on the rest of Asia despite a supply-chain diversion from China, it added.

Mr. Ravelas noted that Mr. Trump’s protectionist policies “could hurt the Philippine economy by reducing exports to the US and affecting remittances from Filipino workers in the US.”

The United States remains the top destination of Philippine-made goods. In August, it accounted for close to 20% of exports during the month.

The world’s most powerful economy also typically accounts for nearly half of overall monthly remittances to the Philippines.

Meanwhile, the peso is also seen to be under less pressure if Ms. Harris assumes the presidency.

“The Philippine peso might experience less volatility under a Harris presidency. A stable US economic policy could lead to a more predictable exchange rate environment, benefiting the Philippine peso,” Mr. Ravelas said.

Under a Trump administration, the local currency could depreciate against the dollar if US interest rates rise.

“Investors might prefer the higher returns in the US, as well as the impact of tariffs could lead to competitive devaluation.”

The peso closed at P58.10 per dollar on Thursday, rising by 13 centavos from its P58.23 finish on Wednesday. Peso trading was closed on Friday due to the All Saints’ and Souls’ Day weekend.

The peso has returned to the P58-per-dollar level since August.

Source: Business World

Household spending boosted by remittances

Overseas remittances substantially boost household spending and are dependent on a host of factors that include the exchange rate, unemployment and transfer costs, Bangko Sentral ng Pilipinas (BSP) researchers said.

In a discussion paper, researchers Veronica Bayangos and Cymon Kayle Lubangco noted that OFW remittances have long been a vital pillar of the Philippine economy, supporting household spending and foreign currency reserves, especially in economically challenging periods.

OFW households, they said, prioritize consumption over savings and investments. Migration status and educational attainment also influence where the money is used.

Immediate consumption also tends toward non-food, and "largely welfare-inducing" items such as health, education and housing, while allocations for productive consumption goods "shows that remittances are treated as transitory income."

"Our estimates reveal that receipt of cash remittances is positively driven by the number of OFWs abroad, unemployment rate, and the depreciation of the peso against the dollar," the researchers said.

"However, high regional wages and bank financial transaction costs reduce remittance receipts."

Remittances may cushion labor market shocks in the short term, but OFW households are also at risk if economic conditions in host countries also worsen, the researchers noted.

Financial development, meanwhile, was said to help raise remittances, but only if accompanied by increased financial inclusion and lower transaction costs.

An apparent decline in cash remittances, the BSP researchers said, can be attributed to a rise in the cost of sending money from abroad to the country.

As of the first quarter of 2024, 96.6 percent of surveyed OFWs families said they were using remittances for food and household needs. Allocations for medical expenses and home purchases also rose compared to the fourth quarter of 2023.

On the other hand, the proportion of households that used remittances for education, savings, consumer durables, debt payments, motor vehicle purchase and investments fell, the researchers noted.

Remittances have been relatively stable at 8.0 to 9.0 percent of nominal gross domestic product since 2017, they said, while cash remittances are slightly lower at 7.0 to 8.0 percent.

Cumulative growth for both types has trended downward, the researchers noted.

The US remained the largest source of remittances as of last year. The Philippines was among the top five five recipient countries at $40 billion, outpaced only by India ($125 billion), Mexico ($67 billion) and China ($50 billion).

The BSP researchers noted that while remittances are expected to grow by 3.1 percent this year, this could change due to an escalation in the US-Ukraine war and conflicts in the Middle Ease, volatile oil prices and exchange rates, and greater-than expected economic slowdowns.

A substantial decline would have an impact at both the macroeconomic and household levels, they said, with families likely to face reduced capabilities to meet education and healthcare needs.

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Source: Business World and BSP

Economy below-target growth likely

The Philippine economy "is in need of further support," a London-based research firm said, warranting more rate cuts by the Bangko Sentral ng Pilipinas (BSP).

In a report released last Friday, Capital Economics noted that gross domestic product growth had slowed to 0.5 percent quarter on quarter, from 0.9 percent in the first three months of 2024, due to declines in private consumption and exports.

"Looking forward, fiscal tightening and weak export demand should keep growth subdued," it said.

Gross domestic product (GDP) growth currently stands at the bottom end of this year's downwardly revised target of 6.0-7.0 percent.

Economic managers have been saying that the target will likely be achieved and also raised the possibility that the goals could be raised given slowing inflation and increased government spending.

The BSP, Capital Economics said, will likely order a 25-basis point (bps) rate cut this Wednesday in a repeat of an August decision that kicked off an easing cycle.

Another cut is expected in December, with more in 2025, and the central bank's policy rate will likely end next year at 4.75 percent, it added.

This "makes us more dovish than the consensus," Capital Economics said.

It also noted that inflationary pressures were weak, with headline inflation having fallen to 1.9 percent in September — below the BSP's 2.0- to 4.0-percent target.

"Our forecast is that a combination of weak economic growth and falling food price inflation will keep [overall] inflation low," the research firm said.

Japanese investment bank Nomura, meanwhile, also expects the BSP to announce a 25-bps cut this week and again in December as it pursues a data-driven approach to setting monetary policy.

"We think BSP will cite the decline in headline inflation that allows it to further reduce the restrictiveness of its monetary stance in a calibrated manner, amid soft domestic demand conditions and a negative output gap," it said in a report last week.

A 25-bps cut will bring the BSP policy rate to 6.0 percent.

"[U]nlike other regional central banks, BSP adheres more strictly to its inflation targeting framework and will be more driven by the latest data outturns on inflation," Nomura said.

The outlook for inflation, Nomura added, suggests that it will remain slightly below target in the coming months; thus, Wednesday's "policy statement and comments in the press briefing are therefore also likely to remain dovish, with BSP continuing to comment that it sees scope to deliver more rate cuts."

It added that while the Monetary Board could raise its inflation forecasts to take into account higher crude oil prices, these will likely still be considered "target-consistent."

The BSP is also expected to declare that inflation expectations are well-anchored, which will set the " stage for another 25 basis points cut, which we forecast at the last monetary board meeting of the year in December," Nomura said.

While the US Federal Reserve's easing cycle also supports further BSP easing, the Philippine central bank is not expected to copy the Fed's jumbo 50-bps cut last month.

"The substantial RRR (reserve requirement ratio) cut is already providing additional easing, and [BSP] Governor [Eli] Remolona said he prefers 25bp increments in the policy rate," Nomura said.

The central bank last month announced a 250-bps cut in the RRR for universal and commercial banks and non-bank financial institutions with quasi-banking functions; 200 bps for digital banks; and 100 bps for thrift banks, rural banks and cooperative banks.

The new ratios will take effect on October 25.

Source: Manila Times