Stronger than Expected!
by Rick Daligdig
This is it! The latest different economic figures have been out a few weeks ago. Some numbers caught economic analysts by surprise and some are tallied to what is being forecast. The Philippine Economy has some gains and downsides. Let’s take a recap of some of these.
S&P AFFIRMS PHILIPPINES INVESTMENT GRADE.
The credit rater said it kept a “stable” outlook, reflecting expectations of economic recovery and a significant decline in the fiscal deficit in the next two years.
Under S&P’s global rating scale, “BBB+” is considered an investment grade rating, and reflects a sovereign’s “adequate capacity to meet financial commitments, but more subject to adverse economic conditions.
S&P GLOBAL RATINGS last affirmed its credit rating for the country in May 2021 with the same “stable” outlook. The affirmation came due to the strong performance of GDP in spite of the external headwinds that can dampen the economic recovery, the country has signs that we will be entering to endemic phase from pandemic phase in coronavirus, plus the further relaxing and reopening of the economy.
S&P said it might upgrade the Philippines’ credit rating if the economy recovers faster than expected and the government achieves “more rapid fiscal consolidation.”
“We may also raise the ratings if institutional settings, which contributed to a significant enhancement in the Philippines’ pre-pandemic credit metrics over the past decade, further improve,” it said.
However, S&P cautioned that a downgrade is possible if the Philippines’ recovery falters, which could lead to a “significant erosion” of the long-term growth trend. The factors they are considering are the debt-to-GDP ratio which is still above 60% benchmark, and the boiling local inflation due to aggressive interest rate hikes by US Federal Reserve.
Balance of Payments swings to Surplus in October
Balance of Payments (BoP) is a summary of the economic transactions of a country with the rest of the world for a specific period.
According to Bangko Sentral ng Pilipinas (BSP), October BoP was improved after six consecutive months of deficit, it was swung to surplus at $711 million. Year-to-date BoP deficit stood at $7.1 billion. It is in favor of us because we have more dollar inflow rather than exited to the country.
Gross International Reserve increases.
As follows, the Gross International Reserves (GIR) of the country which defines as the US dollar value of holdings of foreign exchange, special drawing rights, reserve position in the IMF and gold at the end of a given period is also at positive territory.
The GIR reached at $94.1 billion as of end October, up 1.9% from the $93 billion as of end September. However, this was 12.8% lower than the dollar reserve of $107.89 billion as of end October 2021.
Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn. This GIR level is enough to cover about 6.7 times the country’s short-term external debt and is equivalent to 7.5 months of imports of goods and payments of services and primary income.
GDP post strong Q3
The Gross Domestic Product (GDP) expanded faster than expected pace in the third quarter, putting it on track to beat the government’s full-year target, but faces headwinds from soaring inflation and rising interest rates.
The Philippine Statistics Authority (PSA) showed the gross domestic product (GDP) grew by 7.6% from July to September, slightly faster than the revised 7.5% growth in the second quarter and 7% a year earlier.
For the first nine months of the year, GDP growth averaged 7.7%. The Philippines’ GDP growth of 7.6% was the second highest in Southeast Asia in the third quarter, behind Vietnam’s 13.7%.
“The better-than-expected third-quarter economic performance reflects the much good economic news lately… Overall, the recovery is gaining strong traction,” Finance Secretary Benjamin E. Diokno told reporters in a Viber message.
To achieve the government’s 6.5-7.5% full-year target, Mr. Balisacan said the economy would only need to grow by 3.3-6.9% in the fourth quarter.
As the holiday season is approaching, the government can easily meet its impose economic growth of 6.5 to 7.5% full-year target. But still, there some challenges that we will confront like inflation, the US Fed if they will be hawkish in their interest rate stance which like our BSP will match in order to make our Philippine peso afloat. In addition, the natural calamities that hits us create temporary supply chain disruption in the local market. These are the downside part of our economic activity.
FDI net inflows drops
Data released by the Bangko Sentral ng Pilipinas (BSP) showed FDI net inflows fell by 19.2% to $797 million from $987 million a year earlier. Month on month, FDI net inflows were 73.3% higher than $460 million in July.
“The slowdown in FDI may be attributed to concerns over weakening global growth prospects, particularly with the moderating demand and policy tightening in major economies,” the BSP said in a statement.
The worldwide inflation, ongoing Russia – Ukraine conflict, soaring prices of oil and oil products and the looming recession in US and Europe are some of the factors that hurt investor confidence. That is why the current administration wherein tirelessly encourages foreign investors to invest in us because FDI has direct impact on all components of our economy.
INFLATION continues to heat up.
The latest inflation print was the fastest in nearly 14 years or since the 7.8% seen in December 2008 during the global financial crisis.
“The October 2022 inflation outturn of 7.7% is within the BSP’s forecast range of 7.1% to 7.9%, consistent with the BSP’s assessment of inflation remaining above target over the near term as price pressures broaden and signs of further adverse second-round effects emerge,” the central bank said in a statement.
In order to mitigate this government must extend help to the most vulnerable groups like agriculture, transport sector and the marginalized sector.
However, BSP Governor Felipe M. Medalla said inflation will peak before the end of the year.
“It will peak before the end of this year. Of course, anything can happen but our best guess that it will peak either this month or the last month of the year,” Mr. Medalla said in an interview with Bloomberg TV.
The BSP on its last board meeting fired off another jumbo rate hike at 75 percent in order to arrest the inflation and keep the peso afloat against the greenback.
The government can do so much in the remaining months so that its targets for the year 2022 must be realized. Now that we are pivoting from pandemic to endemic stage of COVID-19, keeping up the economic recovery and pursuing economic policies of the government must be enforced. END