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US Credit Rating Downgrade and the Philippine Economy

by: Karen Cayamanda

Wednesday, August 10, 2011 | Outsourcing News |

For the first time, Standard & Poor’s had lowered the US credit rating from AAA to AA+. Credit ratings indicate the opinion of the agency about the “ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time,” according to www.standardandpoors.com.

What does this mean? In these uncertain times, it could bring about serious effects to financial markets and businesses not only in the US but also in other parts of the world.

In stock markets, investors may panic over their shares, resulting to rapid selling of stocks. Some individual investors already did. As the US economy slows down, experts and business owners see some sort of a domino effect on various industries and aspects of the Philippine economy, though it may be too early to say what this situation may bring. Of course, one of the first to feel the impact would be the OFWs. According to Department of Labor and Employment Secretary Rosalinda Baldoz, they are now looking at the recent US situation and how it will affect the deployment of Filipino workers to the US. OFW remittances would be greatly affected as well if this gets worse.

BPO players to see effect of the US downgrade

How does this affect the outsourcing industry of the country? For an industry where the peso-dollar exchange rate plays a huge role, business process outsourcing (BPO) players will definitely see the effect of the US downgrade. Western companies may be a little bit more cautious when it comes to spending due to the current global economic situation. Since the US is the largest market of the Philippine outsourcing industry, this downgrade will surely be felt in one way or the other. However, the industry remains confident and optimistic and growth is still projected in the next few years. The game development segment, for instance, aims for a faster growth rate of 60-70 percent next year.

It may take time before the economy can really feel the effects of this situation, but the psychological impact is probably the worst right now. In times of uncertainty, company owners obviously become very cautious. Some even panic as they try to keep their investments safe and their business going.

Companies have yet to fully see the impact of this downgrade, but it is important to put the game face on and stay resilient. Now more than ever, it is crucial to stay abreast about what’s happening and be ready for anything.

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