Inflation, weak peso seen slowing PHL growth

A wide variety of fish at the Marikina Public Market. — PHILIPPINE STAR/ WALTER BOLLOZOS

GROWTH will likely slow as the Philippines grapples with rising prices, the peso’s depreciation, and a broader slowdown in other economies, according to an economist.

“Domestically we are facing the triple threat of surging prices, rising borrowing costs and elevated debt levels. Slower global trade and the impact on remittances should sap growth momentum even more,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

“We can still expect the economy to post positive growth aided by robust consumption albeit at a slower pace,” he added.

According to Moody’s Analytics, the growth of emerging markets like the Philippines is expected to be slowed by inflation.

“Since the Federal Reserve first started to raise rates in its March meeting, most emerging market currencies have depreciated by less than those of advanced economies and in some cases have even risen in value against the dollar. Emerging market stock exchanges have performed even better compared with most stock markets in advanced economies, but this outperformance will soon fade,” according to the report.

“As the tightening cycle in emerging markets peaks and rates in the US and other advanced economies push higher, the interest rate differential, or extra return from holding emerging market assets, will narrow. This will press down on emerging markets’ currencies and equities, thinning their lead over advanced-economy assets,” it added.

The Federal Reserve delivered its fourth straight 75-basis point (bp) rate hike this week. The US central bank has now hiked borrowing costs by 375 bps since March.

On Thursday, the peso closed at P58.80 against the dollar, weakening from its P58.47 finish Wednesday, according to Bankers Association of the Philippines data.

As of Thursday’s close, the peso has weakened by 13.3% against the dollar since it closed at P51 on Dec. 31. It is also 20 centavos away from its record low close of P59.

“Any remaining resilience will evaporate amid a challenging macroeconomic environment. We are still calling for growth next year in most emerging economies, but softer global demand, weak labor markets, and lingering inflation will make it a squeaker. As emerging economies tangle with these challenges, the growth in jobs and incomes we have seen this year will grind to a halt,” the report added.

Moody’s Analytics said emerging stock markets have been improving, except for the Philippines and Colombia.

At the stock market on Thursday, the Philippine Stock Exchange index fell 0.80% or 50.13 points to close at 6,156.11 while the broader all shares index shed 0.58% or 19.18 points to close at 3,257.83.

The report said that emerging economies are less reliant on external debt and have made progress in developing local-currency bond markets.

“Foreign currency reserves — the first line of defense in a currency crisis or external shock — are flush. Since the emerging market crises of the 1990s and early 2000s, emerging market central banks have accumulated a war chest of reserves,” it said.

“While the level of reserves needed to ward off a speculative attack differs from country to country, currency reserves in major emerging markets are around twice what they were when these economies last experienced a major crisis,” it added.

However, the report said that foreign currency interventions are not always well-timed. “But reserves do constitute heavy armor, and along with lower external debt burdens they make the prospect of another 1990s-style emerging markets crisis a remote one,” it added. — Luisa Maria Jacinta C. Jocson