By Luisa Maria Jacinta C. Jocson, A reporter
The PHILIPPINES is the most isolated from The planned restrictive policies of US President Donald J. Trump within the Association of Southeast Asian Nations (ASEAN) economies, said HSBC.
“Across ASEAN, the Philippines is the strongest country among these tax risks,” HSBC ASEAN economist Aris D. Dacanay said at a press conference on Wednesday.
“Vietnam, Thailand, these are countries that are at risk of US tariffs. But in the Philippines, we are very protected from that risk. ”
The President of the world’s most powerful economy wants to implement tougher tariffs and tougher immigration measures, among other policies.
Mr. Trump, who will take office as US president on Jan. 20, he promised to impose a 10% global tariff and a 60% tariff on Chinese goods.
Mr. Dacanay flagged the potential inflationary pressures from these policies but noted that the impact may be more “mitigated” than initially expected.
“We don’t think that these policies will be implemented fully, but they will be implemented to some extent. How much remains to be determined. The good news is, ASEAN is a great place to be.”
In the Philippines in particular, Mr. Dacanay noted the country’s limited exposure to US exports.
“First of all, our trade surplus or trade deficit with the US and the Philippines is small. Putting a tax rate in the Philippines will not really lead to that,” said Mr. Dacanay.
On the other hand, he noted that the exposure of Filipino services to the US is the highest in ASEAN.
“Why is that good? Because you cannot tax services. You cannot file taxes online. You can’t tax digitalization. The name of the game today is artificial intelligence. This is where the Philippines is in a position to wake up and shine.”
Previous data from the central bank showed that the Philippines booked services exports worth 37.4 billion in the first nine months, up 6.25% from last year.
“These are tax-free exports, with no tax risk. As we speak, foreign direct investment (FDI) services, greenfield FDI in services exceeds that of manufacturing. This is the name of the game in the next four years.”
Meanwhile, Mr. Dacanay also pointed out the strong financial environment of the Philippines, which will help to avoid any challenges.
“Tax revenue-to-gross domestic product (GDP) is falling everywhere in ASEAN. Only in the Philippines is the tax-to-GDP ratio really rising,” he said.
“As a result, we have room to invest in our long-term goals. You cannot put a tax value on this public infrastructure investment. The money we spend on public infrastructure is our responsibility. It doesn’t depend.”
The Marcos administration plans to spend 5-6% of GDP on infrastructure every year.
“Conditions that promote the growth of public services, the use of infrastructure, consumption, these are not reflected in tax risks. And it is for this reason that I think the growth in 2025 will be around 6.3%,” he added.
Although the Philippines is the most secure compared to its neighbors, Mr. Dacanay said it still faces some risks.
“These tax risks go through one part of our economy, and that is monetary policy. Markets are now pricing in higher prices in the US.”
“Of course, this is important for the Philippines because we cannot lower the Fed. Cutting too much before the Fed will introduce risks, currency, volatility, which as we saw in October 2022 when the peso hit P59 for the first time, there were financial risks that happened at that time. “
Last year, the peso tripled to a record low of P59-per-dollar as the dollar rose on bets of a rate cut by the US Federal Reserve amid inflation concerns.
“HSBC expects the BSP to comply with the US central bank in order to reduce these risks. We are of the view that the BSP will follow the Fed one-to-one in its tapering cycle,” he said.
The Fed in December predicted just two rate cuts in 2025, down from the four it had previously predicted. Markets are currently 38 basis points below that, and the first price will be fully reduced in July, Reuters reports.
Mr. Dacanay said they now think the BSP will continue to ease, bringing the policy rate to 5% in the third quarter, not the second quarter as expected.
“We are pushing this back to the third quarter of 2025, mainly because in order to manage high interest rates in the US, the BSP will need to follow the Fed and lower interest rates gradually to keep the peso stable. “
However, this opinion may change if the proposals of Mr. Trump is starting to work full time.
“If our call is wrong and these policies happen in the second half of 2025 fully, the Fed may need to keep interest rates high. It may raise interest rates if inflation rises too much. And that may mean that in the Philippines, the BSP may delay its cycle of ease.”
The BSP has delivered a cumulative rate cut of 75 basis points (bps) over the past year since it began its easing cycle in August. This brought the key rate to 5.75%.
Mr. Dacanay said the level of the current policy has not yet been determined. “Let’s not take sides. If interest rates are high, that is a decrease in investment. The biggest risk for the Philippines is if the Fed raises rates again. “
Meanwhile, HSBC expects the peso to break above the record low of P59 but not exceed P60.
“We have to take it in context, all Asian currencies will decline across the board but the Philippines will be among the strongest,” said Mr Dacanay.
He also noted that the BSP has more reserves compared to other major banks in the region, and it is working in managing flexibility.
“The US dollar will strengthen but the Philippines will depreciate to a lesser extent and it will come in the second quarter when the favorable season is waning.”