Philippines insulated from higher US tariffs 

Among member states of the Association of Southeast Asian Nations (ASEAN), the Philippines is the most insulated from the effects of the possible imposition of higher tariffs by United States President-elect Donald Trump, an economist from HSBC Global Research said in a report by Philippine News Agency.

Trump earlier pledged to impose 60-percent tariffs on goods from China and 10 percent from the rest of the rest of the world.

In a briefing at the Shangri-la at The Fort in Bonifacio Global City, HSBC Global Research ASEAN economist Aris Dacanay said the Philippines is "very insulated" from the risks of higher US tariff rates.

"Our trade surplus or the US trade deficit with the Philippines is negligible. Putting a tariff rate on the Philippines will not really lead to so much," Dacanay said.

"But I guess more importantly... the risk of global trade contracting, or not contracting, or at least getting smaller, even the exposure of the Philippines is quite small because across ASEAN, our goods exposure is the smallest in ASEAN."

Dacanay, however, said the Philippines is known for its services exports.

"You cannot put tariffs on services. You cannot put a tariff on the internet, you cannot put a tariff in digitalization. The name of the game today is artificial intelligence and that's where the Philippines is in the position to rise and shine," he said.

Aside from the growth in services exports, Dacanay said the country's fiscal space is also robust.

He said that while tax revenue to gross domestic product (GDP) is falling in other countries in the region, the tax revenue to GDP ratio in the Philippines is rising.

"And because of that, we do have a space to invest in our long-term goals," he said.

Dacanay said the increase in infrastructure to GDP spending will also help boost economic growth, which is expected to settle at 6.3 percent this year and further accelerate to 6.7 percent in 2026.

Dacanay, however, said the Philippines is not completely insulated from the impact of higher US tariffs.

"Because these tariff risks go through one part of our economy, and that is monetary policy. You have the Fed rate, with Trump being elected, markets are now pricing in higher interest rates in the US. Even the Fed adjusted its FOMC forecast for the Fed rate to settle around 3.75 percent," he said.

Dacanay said this means that the Bangko Sentral ng Pilipinas (BSP) cannot cut rates below the Fed due to currency volatility.

With this, he said they now expect a more gradual easing cycle wherein the BSP – mindful of Fed moves and foreign exchange volatility – will cut in alternate rate setting meetings until the policy rate reaches 5 percent by the third quarter of the year.

"So we do have a view that the BSP will follow the Fed one-to-one in its easing cycle. We first forecasted that the BSP will achieve the policy rate of 5 percent as early as the second quarter of 2025," he said.

"We're pushing this back to the third quarter of 2025, mainly because to be able to manage the higher interest rates in the US, the BSP will need to follow the Fed and gradually cut interest rates as well to keep the peso stable."

Dacanay, meanwhile, said the Philippine peso and other Asian currencies are expected to depreciate this year.

He said the peso will likely breach the 59-to-a-dollar level most likely in the second quarter of the year.

"But we do think all Asian currencies will depreciate across the board but the Philippines will be the more resilient one mainly because there are three conditions that make the Philippines or at least the peso currency more robust," he said.

Dacanay said these include the Philippines being relatively insulated from tariff risks, the BSP having more reserves than other central banks in Asean, and growth which will likely remain robust.