The Philippines experienced strong economic growth in 2012 and is projected to continue growing in 2013. The economy expanded 7.1% in the third quarter of 2012, its highest rate since 2010, driven by consumption and government spending. Meanwhile, the stock market has reached over 35 record highs in the last 11 months, and may continue rising to 6,000-6,500 levels. Inflation is forecast to be around 3.5% while interest rates are expected to remain low, encouraging more growth. Challenges include volatility from global economic uncertainties and disputes over public-private partnership projects.
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2013 the year ahead
1. Philippines 2013: The year ahead
Tip. The modern day dictionary describes the word as a piece of advice or a piece
of advance or confidential information given by one thought to have access to
special or inside sources. It could also be an acronym for the three Asian countries
with a growth story -- Thailand, Indonesia and the Philippines. These three have
been in the headlines for quite some time now, given their sustainable growth
and strong economic performance. Of the three countries, the Philippines has yet
to reach an investment grade.
This is where our story begins.
As the only country the IMF has upgraded its economic growth forecast for the
year 2012 and a population with a median age of 23 years old, the future indeed
looks bright and interesting for the so-called come back kid.
Global backdrop
The global backdrop remains uninteresting as the Euro slips into a recession,
their second in the span of four years. Constant risk of defaults and bailouts
continue to haunt the PIIGS (Portugal, Italy, Ireland Greece and Spain) nations,
particularly Greece, Italy and Spain. Their quest in trying to balance growth and
austerity continues to challenge their individual governments.
In the US, we have seen much improvement in unemployment and economic
activity this past year but investors are still uncertain over the slow economic
recovery. Like Europe, the US is faced with a huge budget deficit that they need
to attend to. The market fondly calls this the ‘fiscal cliff’. Market players await its
outcome, which adds to the uncertainty.
On the other hand, China, a big economy that is undergoing a major change in its
growth cycle, is signaling stable pro-growth policies with the new leadership and
added government support for urban development. This is a strong contrast to
uncertain themes out of the US and Europe. Thus, Asia provides a silver lining in
the gloomy global context.
Against these backdrops are prospects for the global economy.
2013 Outlook
2. Local market, what in store for 2013?
As growth momentum shifts to Asia, the Philippines in 2012 have proved itself as
the pearl of the orient. With the administration purely focused on plugging the
nation’s budget deficit through fiscal prudence and strong revenue collection
drive coupled with improving infrastructure, local and foreign investors have
noticed the country as an investment destination.
The economy grew 7.10 percent in the third quarter of 2012, its highest since
2010, supported by a strong consumption spending and government spending.
Bonus factors are the low interest rate environment and the stable foreign
exchange rate.
2013 Outlook
3. Peso. Despite these projections, the strong currency has its weakness. Presently
as consumers, we benefit from a strong peso as cost of oil and other imported
materials are cheaper. But OFW families and exporters are on the losing end as
the proceeds of these dollar inflows are lower in peso value. On a larger scale, the
government and the private sector should capitalize on the peso’s strength and
import the much-needed capital equipment and materials to support the
country’s infrastructure sector.
The Bangko Sentral is closely monitoring the currency movements to ensure that
we are within where are peer countries are. Our projection for 2013? The peso
will fluctuate within a wider range of 39.00 to 43.50 but may settle at 42.10 by
yearend.
Stock Market. With the vast improvements in the country’s finances and the
government’s strong drive against corruption, investors have flocked to the stock
market, which in the last 11 months has registered over 35 record highs. The
stock market “phenomenon” has strong legs to support it. The economy is
boosted by consumption driven by BPO revenues and OFW remittances along
with stable macroeconomic numbers. The low interest environment has
triggered investors to shy away from savings to spending. See the chart below.
2013 Outlook
4. At the moment, it seems that the market rally will be sustained and could extend
to try the 6,000-6,500 levels as market participants patiently await the country’s
upgrade to an investment grade, a rating that allows investors to invest in
country’s with sound fundamentals and worth holding on just like blue chip
stocks. At present, looking at all fronts the country is ready for the upgrade.
2013 Outlook
5. From a financial standpoint, the indicators of the financial markets (interest
rates, peso and stock market) already assume the country is at investment grade.
Interest rate, inflation, etc. With the Bangko Sentral continuously on its toes
and on guard to protect the local market from the volatility of global ones, we
continue to see lower borrowing cost and interest rates to remain low. This in
effect would encourage and provide the needed boost to encourage growth and
spending.
Threats of inflation (which is forecasted at 3.5 % level), volatile capital inflows
caused by the uncertain external market factors, and the sometime disputed
implementation of the PPP projects will continue to provide the drama for the
year making things much more colorful.
Tips to go
Given the rosy pre disposition, it is safe to say that the Philippines is definitely in
a better shape than other economies. With continued public trust being enjoyed
by the government as well as foreign confidence on our financial system
continuously burgeoning, it is safe to say that we are on the right track. But we
should not rest on our laurels and be complacent, we are healthy and resilient
but we are not immune to the sneezes and coughs of the global economy, so to
speak.
What can we do to contribute? We can give our domestic market the support so
it may realize its true potential. Now more than ever, domestic consumption is
more valuable than exports to weary and ambiguous external partners.
(Note: Mr. Ravelas is the chief market strategist of Banco De Oro, Unibank, Inc.)
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without prior notice. Any recommendation contained in this document does not have regard to specific
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