Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

US recession will benefit the Philippines

Posted by butalidnl on 17 October 2008

The US recession, which has spilled over into causing a global financial crisis, could not help but affect the Philippine stock and financial markets. The global financial market crisis affects the country through the dollar-peso exchange rate (the peso has weakened) and a withdrawal of some foreign investments. At the same time, we could expect the demand for Philippine exports from the US to decrease as a result of their recession.

The crisis is bad, but I think that in the end the Philippines stands to benefit from it. We are quite used to banking crises, and to the credit of our monetary authorities and banks, the Philippine economy will not suffer too much from even the present crisis. The Philippines will benefit from the US recession in the following ways:

Increased Investments

With the US in recession, international investors will be wary of putting their money in US companies. Many will shift their investments to the third world, such as those in Asia. The Philippines, with its relatively stable economy, will surely benefit from this increased investment.
China, which is getting wary of putting most of its foreign reserves in American bonds, will probably put more of its export earnings into investments in neighbouring countries. It is also expected to stimulate its domestic economy – and this in turn, will open market opportunities for the Philippines.

The Business Process Outsourcing industry stands to gain from a recession in the US. With a recession, US companies will be looking for ways to lessen their operating expenses, and outsourcing some of their operations is one of these. It is not only call center operations, but operations like accounting, data entry, etc. which will find their way to the third world including the Philippines.

Stronger Peso

When the financial crisis is over, the relatively large margin between interest rates in the US and the Philippines will encourage “carry-on” investors – those who borrow money in one country and invest in bonds in another. The Philippines benefited from this in the last few years, causing a big influx of dollars, which in turn strengthened the Philippine peso.
The United States’ national debt has exceeded $10 trillion, and the recession will mean that their government will end up borrowing even more – mostly from foreign sources. This heavy debt burden will result in the dollar weakening vis-a-vis most currencies.
The increased investment flows, plus the weakening of the US dollar, will mean that the peso will strengthen. This is a good thing, especially since the Philippines is a net importing nation.

Cheaper Imported Commodities

The US recession will cause the prices of many commodities e.g. oil, steel, wheat etc. to decrease. Already, we see that the price of oil has declined from almost $150/barrel to around $70 today. This will result in a lower cost of doing business, and lower cost of living for Filipinos. This in turn will help to stimulate the Philippine economy.

3 Responses to “US recession will benefit the Philippines”

  1. The economic crash in the USA is not just a recession but a depression coming, which will affect the EU as well. There will be massive capital flight from the North moving South, and we better prepare to catch them.

  2. Keith Michael Bardoquillo said

    It will get to worse before it will become better. You will know when it is worse when OFWs are losing their jobs and are going home empty handed.

  3. shielacorro said

    Kindly give me some views of the different authors regarding the positive effect of the US crisis to the Philippines.

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