PHILIPPINE manufacturing firms and goods exporters are the most vulnerable to global economic shocks, particularly fluctuations in the dollar, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper.
The study, “The Impact of Global Shocks on Real Investment: Evidence from Macroeconomic and Firm-level Data in the Philippines,” found that company-level responses to global shocks varied significantly, with some sectors experiencing sharper declines in investment than others.“Firm-level analysis reveals substantial heterogeneity in investment responses to global shocks, with the strongest effects observed in firms most exposed to foreign currency debt and import dependence,” the authors said.Among the hardest hit are manufacturing companies and exporters of goods, whose capital expenditures are particularly sensitive to dollar movements.The paper noted that “manufacturing firms and exporters of goods experience pronounced sensitivity to dollar volatility,” reflecting their reliance on imported inputs and exposure to foreign currency liabilities.In contrast, firms operating in less externally exposed sectors appear more resilient. The study found that “services exporters, financial firms and local firms are less vulnerable” to global shocks, suggesting that business models with lower dependence on foreign trade or foreign currency financing provide a buffer against external volatility.The findings showed how global shocks were transmitted unevenly across the economy depending on characteristics such as sector, financing structure and degree of integration into global markets.A key driver of this divergence is foreign currency exposure. Firms with significant foreign debt face greater risks when the dollar strengthens and even companies earning in foreign currency are not fully shielded from these effects.“For exporters of goods, the results suggest that the financial channel of the exchange rate outweighs the trade channel, highlighting that revenues in foreign currency (FX) alone do not fully insulate firms from global shocks,” the authors said.While a weaker peso can improve export competitiveness, the associated increase in debt servicing costs and financial risks can more than offset those gains, leading firms to cut back on investment.The authors highlighted the importance of managing foreign currency exposure, particularly for firms heavily involved in international trade. They stressed that the findings “underscore the importance of managing FX debt even for US dollar earners.”As global financial conditions remain volatile, the study suggested that strengthening resilience at both the firm and policy levels would be crucial to sustaining investment and supporting long-term economic growth in the Philippines.“The results call for enhanced FX risk monitoring and management frameworks, even for firms that earn in US dollars; robust macrofinancial buffers to prevent global shocks from translating into broad-based investment contractions; and targeted liquidity support mechanisms for import-dependent firms during periods of acute dollar stress,” the authors said.
