Philippine economy: New year, new hope

 According to the Institute for Development and Econometric Analysis, Inc. (IDEA) Economic Monitor, most Filipinos still looked to the new year with hope, notwithstanding a string of natural calamities and disasters, as well as increased volatility due to the “tapering” fears in financial markets. As a result, despite a generally strong showing for the whole of 2013, most economic indicators worsened at the end of the year and into the start of 2014. The peso weakened against the dollar, the Philippine Stock Exchange Index fell below the 6,000-level, inflation rose to 2-year high, and interest rates have also started rising.

Given current developments, IDEA expects the economy as a whole to continue to perform well this year, albeit admittedly not as good as the previous year. In particular, the economy is seen to grow by at least 6 percent this year vis-à-vis the 7.2-percent expansion in 2013.

Per IDEA, the peso continued to weaken versus the dollar at the start of the year, going down to PhP44.9:USD1.0 in January vis-à-vis the previous month’s level of PhP44.1:USD1.0. Pressure on the domestic currency, however, was partly relieved by the Bangko Sentral ng Pilipinas (BSP), which was reported to have intervened in the spot market to “smooth out volatility” according to some traders. Market observers argue that the sell-off may have been an overreaction and the peso is expected to somewhat recover by the end of the year. This is consistent with our view that despite the underlying trend towards depreciation, the peso is likely to settle at around the PhP44:USD1.0 level this year.

According to the same published report, the full-year 2013 inflation rate averaged at 3.0 percent, at the lower-end of the BSP’s 3.0-5.0 percent target. Prices remained generally subdued during the past year, except for a spike towards the end of the year due to the impact of Typhoon Yolanda and increased fuel and utility costs. The uptick in prices is seen to continue at the beginning of 2014, still partly due to typhoon-related damages in the country’s central regions and higher electricity prices.

For 2013, rates for Treasury-bills (T-bills) averaged at 1.49 percent, 1.75 percent, and 2.01 percent for the 91-day, 181-day, and 364-day tenors, respectively. For the first month of 2014, yields on all maturities averaged at 0.87 percent, up sharply from the 0.12 percent average in November 2013. While the 181-day T-bill remained flat at 0.00 percent, the 91-day and 364-day tenors both jumped to 0.69 percent and 1.08 percent from 0.00 percent and 0.28 percent, respectively

Analysts expect gross domestic product (GDP) growth in the last quarter of 2013 to be at 6 percent, lower than the level recorded in the previous quarter. Meanwhile, Moody’s Analytics expect a higher growth at 6.6 percent, citing that the past supertyphoon caused growth to ease from its 7 percent level for the past three quarter. Socioeconomic Planning Secretary Arsenio Balisacan expects growth to be at 5.8 to 6.5 percent and the annual growth to be at percent. The factors that affected growth are robust domestic consumption, higher government spending, sustained investments, and rebound in exports, according to the researchers of IDEA.

IDEA’s Economic Monitor is a monthly publication of IDEA to provide a summary of monitored news and indicators of the economy released in the preceding month.

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