The Philippines registered certain impact from the global market volatility in the beginning of 2016. However, it was relatively protected from the uncertainty compared to other Asean nations. Asian markets witnessed fresh bout of risk aversion with China concerns post turn of the year. This led to sell-offs in Asian currencies. Prices, particularly for the pair USD/PHP rose to 48.000 in January, a fresh six-year high. However, the peso recovered significantly after oil price recovery from February.
The Philippines continues to be one of the promising Asian nations with strong growth potential despite facing headwinds from the region. The country’s GDP recorded a growth of 6.3% y/y in Q4 2015, more than market projections of 5.9% and above Q3’s 6.1% y/y growth. The rebound in growth was supported by solid government expenditure and consumer consumption. The GDP growth for entire 2015, however, dropped to 5.8%.
“Moving forward, 2016 is expected to yield slow but steady growth as well at 6.0% y/y given the delayed recovery of commodity prices and the continued drag on goods trade in the region, even as the twin engine of growth from private and government consumption remain intact”, says 4cast.
Investments are also likely to face risk on the downside with noise from the forthcoming political elections and global economic slowdown. However, the Philippines is expected to record a GDP growth of 6.3% in the first quarter of 2016, added 4cast. Moreover, private consumption is also likely to stimulate GDP, as it is evident from the high consumer sentiment in Q1.
On the inflation front, prices have been higher from the multi-year lows of 0.4% y/y recorded in September and October of 2015. Inflation reached 1.5% y/y in December and decelerated again to 0.9% y/y due to declining oil prices. With the declining expectation of a rebound in oil prices in 2016 and as the global growth slows, the central bank lowered its projections for 2016 and 2017 inflation rates to 2.1% and 3.1% respectively.
“Upward pressure from environmental factors tend to affect the country in the mid- to second half of the year and will likely bring the average inflation rate to about 2.2% as we have forecasted at the start of 2016, keeping within the BSP's target range of 2.0%-4.0%”, says 4cast.
Meanwhile, on the monetary policy front, the BSP is not expected to change policy rate in the near term given the forthcoming uncertainty from the Presidential elections and shift to the interest rate corridor, according to 4cast. Philippines’ domestic conditions continue to be stable despite the external sector facing volatility and headwinds from Asian region.
According to the recent trade data of January, weak export conditions continue to trouble the nation into 2016. Exports declined 3.9% y/y, whereas imports grew sharply to 30.8% y/y, widening the trade deficit to USD 2638 million. However, it is not a total bad situation as the high import volume indicates strong economic activity. With the relatively stable currency, stronger growth rate and lower inflation rate, it is possible for the central bank to hike rate in H2, according to 4cast.
The material has been provided by InstaForex Company – www.instaforex.com