In a Sept. 18 report, titled “Philippines Monthly: The bright spot in EM” (emerging markets), Deutsche Bank said local financial markets tumbled along with peers last month after the Chinese central bank devalued the yuan.
Despite the sell-off, Philippine markets performed better among emerging economies, the bank noted, citing the country’s strong macroeconomic fundamentals and smaller bond and equity exchanges.
While economic expansion eased to 5.3% last semester from 6.2% a year ago — as against the government’s 7-8% full-year target — the bank said the country “continues to face positive growth prospects just when its Asian neighbors are at risk of slowing down.”
“Private consumption and investments have been strong, fueled by at least $2 billion of remittances every month, better job prospects from the services sector, and more recently, lower commodity prices,” Deutsche Bank said.
“This improvement in incomes can be observed in changing consumption patterns, with expenditures on non-essential items, transportation, education, and health contributing increasingly to overall private consumption growth.”
Deutsche Bank said it expects the economy to grow at 6% this year and 6.5% in 2016 from last year’s below-target 6.1%.
Sustained inflows from overseas Filipino remittances and the business process outsourcing industry also led the Bangko Sentral ng Pilipinas (BSP) to shore up ample reserves that it can tap to cushion the peso from depreciation pressures.
“Its reserves — equivalent to about 14x its gross external financing needs — make the BSP better equipped within EM to protect the economy from external shocks,” Deutsche Bank said.
“The economy also stands as less vulnerable relative to its peers in the face of rising borrowing costs, which could be triggered by the looming policy normalization by the US Fed.”
Government debt has been reduced to below half of the economy while household and corporate borrowings have continued to lag behind those of other Asian emerging markets.
“More worrisome then may be the pace of increase in leverage over the years amid declining borrowing costs. But the adverse impact of rising rates will likely be confined to limited segments of the economy,” Deutsche Bank said.
Going forward, the challenge now lies in the government spending as planned.
“A change in leadership is forthcoming, with elections taking place in May 2016. And this is likely to pressure the incumbent to push for spending, especially towards infrastructure (where there is a substantial deficit), if he wants to leave a favorable mark on the country,” Deutsche Bank said.
A strengthening of the currently brewing El Niño that state weather officials now say could turn out to be worse than the 1997-1998 “strong” event, however, could drag both local output and further weaken farm exports at a time of a slowing Chinese economy and sluggish global trade, the bank said. — Mikhail Franz E. Flores
As seen on Business World Online