Cash remittances to the Philippines, which bolster consumer spending and the domestic economy as a whole, are at risk to be slashed by stricter immigration control and a clampdown on illegal migrants by US President-elect Donald J. Trump.

In a Nov. 18 report, Capital Economics deputy chief emerging markets economist Jason Tuvey and assistant economist Lily Millard said that in remittances-dependent economies, including the Philippines, a protectionist Trump 2.0 administration taking the helm in January 2025 would impact flows from the US.

"Many migrants living and working in the US remit money to their home-countries. Alongside the impact of migration curbs and possible deportations, remittances could also suffer if the Trump administration pushes ahead with a proposal from Vice President-elect JD Vance to impose a tax on remittances," Capital Economics said.

"If people are deported from the US, their remittances would dry up. The implications of a tax on remittances are more ambiguous. Remitters could simply decide to increase the dollar value of the money that they send back home to offset the value of the tax. They may also turn to informal channels to remit, which generally involve middlemen to send cash, in order to simply skirt around any tax," the London-based think tank added.

Capital Economics' estimates showed that Caribbean and Central American countries like El Salvador and Honduras, where money sent back home by migrants who live and work in the US is equivalent to over one-fifth of their gross domestic product (GDP), shall be the most impacted.

"Even for larger economies, such as Mexico, the Philippines and Nigeria, remittances from the US are equal to a not insignificant 1.5-3.5 percent of GDP—although we don’t know the share of these which are remitted by undocumented migrants," Capital Economics noted.

Philippine Ambassador to the US Jose Manuel G. Romualdez earlier disclosed that there are up to 300,000 illegal Filipino immigrants in America, whom he had urged to return home ahead of Trump's mass deportation plan.

US Census Bureau data has shown that about 4.1 million Filipino-Americans are living in America in 2022.

According to the latest Bangko Sentral ng Pilipinas (BSP) data, the US was the source of 41.3 percent of total remittances—cash remitted through banks, plus capital and personal transfers between households—from January to September of this year.

Based on the BSP's reporting of remittances from overseas Filipinos, the US is usually the No. 1 source country due to remittance centers' common practice of coursing money transfers via US-based correspondent banks.

Also, lower dollar remittances would shrink current-account surpluses or bloat net-dollars deficits in emerging markets, Capital Economics warned.

In turn, a wider current-account deficit would put depreciation pressures on currencies like the Philippine peso, adding to factors seen strengthening the US dollar such as a likely hike in interest rates resulting from elevated inflation to be wrought by bigger production costs due to labor restrictions and higher import tariffs to be slapped by Trump.

The Philippines' current-account deficit, while smaller year-on-year, stood at 3.2 percent of GDP as of end-June 2024.

"In those countries with floating exchange rates, such as Mexico and the Philippines, exchange rate depreciations would help to cushion the blow to domestic demand by increasing the local currency value of inward remittances. They would also facilitate any required adjustment in the balance of payments as a result of lower (dollar) remittance income," according to Capital Economics.

Last week, Capital Economics forecasted the peso could weaken from the current 58.8:$1 level to 59:$1 towards the end of this year, and further drop to 62:$1 before the next year ends.

This reversed Capital Economics' previous estimate that the peso would strengthen against the dollar to P56:$1 by end-2024 and further appreciate to P54:$1 in 2025.

"Weaker currencies can push up the cost of imported goods and add to inflationary pressures. But given the weakness of inflation across the region, this is unlikely to be a major concern to policymakers. In fact, most countries may even welcome weaker currencies, as they should help to offset the impact of higher tariffs," Capital Economics senior Asia economist Gareth Leather and assistant economist Harry Chambers had said

But so far, Oxford Economics, another UK-based think tank, said the peso did not depreciate as much as the expected weakening to be caused by US dollar strength factoring in Trump's impending return to the White House.

"The currencies of India, Indonesia, Malaysia, and the Philippines have outperformed what might be expected given their vulnerability to the direct or second-round effects of Trump's trade policies," Gabriel Sterne, head of global emerging markets research at Oxford Economics, said in a Nov. 18 report.

However, the Philippines was included by Oxford Economics among the most vulnerable emerging economies to Trump economic policies, scoring nearly 25 in a maximum of 50 as the top-most level of vulnerability.

The Philippines placed seventh in Oxford Economics' emerging-market vulnerabilities ranking after Mexico, Colombia, Brazil, Hungary, Chile and Thailand.

In terms of Trump's trade protectionism, the Philippines was also the seventh most vulnerable among emerging markets, with a score of almost 20 out of 40, behind Thailand, Vietnam, Indonesia, Malaysia, Hungary and South Africa. Overall, "data suggest Asia appears more vulnerable to US tariff policies than Mexico," according to Oxford Economics.