WEAK imports can push the local currency to further appreciate against the US Dollar, according to an ING Bank Manila paper.
The paper said while the weak imports in January may point to a weaker gross domestic product (GDP) of the Philippines, it will eventually push the peso stronger.
The Philippine Statistics Authority’s (PSA) recently reported that imports shrank 14.9 percent in January, with all sub-sectors posting declines during the month.
“Weak imports have translated to soft corporate demand for the US dollar, which has been one of the key factors behind the [peso’s] resilience over the past few months,” the paper read.
“With the trade deficit now hovering at roughly $2 billion a month (compared to $3.3 billion prior to Covid-19), expect soft corporate demand for the dollar to help support [the peso] in the near term.”
Last week, the peso’s performance was stronger for the second straight week against the greenback by 0.105 or 0.2 percent.
Rizal Commercial Banking Corp. (RCBC) Economist Michael L. Ricafort said the near-term movement will likely be influenced by the following factors: the new Covid-19 cases locally and worldwide in view of the increased global Covid-19 vaccine rollouts; the detection of new coronavirus variant cases locally since January; and, the arrival and rollout of more Covid-19 vaccines.
Ricafort also said the Corporate Recovery and Tax Incentives for Enterprises bill could also be market moving for the peso once signed into law by President Duterte. Likewise, this could 1further progress on the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery nill, after approval by the House of Representatives at the final reading, he added.
As for imports’ effect on the local economy, the ING Bank Manila paper said the “ongoing slump in imports suggests that growth pains for the Philippines will be around for some time.” This is as the sustained drop in capital goods and raw materials suggests that potential output is falling as well.
“Heavy machinery for construction, commercial aircraft, and road vehicles have all fallen sharply, which will dent capital formation and cap any recovery effort for an economy still struggling with recession,” the paper said.
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