WHILE the country’s economic growth targets remain attainable, the Philippine peso is expected to take a beating in the third quarter as trade deficits swell, uncertainty looms on interest rates, and the US dollar strengthens, according to a local think tank.
In its latest Market Call report, First Metro Investment Corp.-University of Asia and the Pacific (FMIC-UA&P) Capital Markets Research said the country’s GDP growth target of 6-7 percent remains attainable despite the lackluster 4.3-percent growth in the second quarter of 2023.
However, the think tank said its technical analysis for August “showed that actual dollar-peso has exceeded both the 30-day moving average [MA] and the 200-day MA.”
“Q3 [third quarter] won’t treat the peso kindly as interest rates abroad will remain high while Philippine balance of trade deficits should again balloon due to the surge in crude oil prices,” FMIC-UA&P Capital Markets Research said.
On Wednesday, data from the Bankers Association of the Philippines (BAP) showed the peso closed at P56.725 to the US dollar. The peso traded at a high of P56.79 and a low of P56.6 to the greenback.
The peso’s close on Wednesday was better compared to the P56.75 to the dollar close on Tuesday. On that day, the peso traded at a high of P56.81 and a low of P56.55 to the dollar.
FMIC-UA&P Capital Markets Research said the uncertainty over policy rates and the “renewed bullish greenback” caused the volatility in the peso throughout the month of July compared to June.
“USDPHP continued to move up in August as the US dollar rebounded due to higher interest rates there. The FX rate will remain challenged for the rest of Q3 as PH trade deficits will likely balloon again in August with significantly higher crude oil prices and US interest rates staying at elevated levels,” the think tank said.
Meanwhile, in terms of overall economic growth, the 5-percent increase in employment recorded in the second quarter will boost incomes and spending in the second semester of the year.
FMIC-UA&P Capital Markets Research also said government spending could improve in the second semester after posting a contraction in the second quarter.
Data from the Philippine Statistics Authority (PSA) showed that Government Final Consumption Expenditure (GFCE) contracted 7.1 percent, the lowest since the first quarter of 2011 when it contracted 15 percent. (Full story here: www.businessmirror.com.ph/2023/08/11/4-3-gdp-growth-in-q2-slowest-in-2-years/).
“The National Government [NG] will likely ramp up infrastructure in H2, in addition to the major ongoing PPP projects. Google’s mobility index for the Philippines shows an upward trend that exceeds those of our neighbors and should sustain employment gains in the Services sector,” the local think tank said.
Earlier, National Economic and Development Authority (Neda) Secretary Arsenio M. Balisacan said in a budget hearing that if only the spending targets of the government were met, GDP in the second quarter could have reached 5.6 percent.
Speaking partly in Filipino, in a briefing on Thursday, he traced the slow growth in the Government Final Consumption Expenditure to, “partly because of the election-related spending that I mentioned earlier,” adding: “The figure was high last year because of the election. [Also] part of the fiscal consolidation, I am sure we will address or we will make sure that the fiscal deficit, the debt, [are] at the level that we are targeting.”
Balisacan added, “Since there was a lot of spending during the pandemic and also during the election, we now have to consolidate and that’s why you see slower growth in government consumption expenditure. But that should go to its normal pace in the latter part of the year, particularly [in] the next year.”
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