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Philippines seen to outperform neighbours in 2014

Publication Date : 17-12-2013

 

The Philippine economy will continue to outperform its Southeast Asian neighbors as the US Federal Reserve starts scaling back its monetary stimulus in the coming months.

The tapering of the US Fed’s quantitative easing is expected to weaken currencies and lead to higher interest rates across the region. However, Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP) remained confident that the Philippines had enough buffers to stay competitive.

“As the dust settles from all this, investors will go back to (focusing on) country fundamentals. That’s where our advantage lies,” Tetangco said.

He said global fund managers should recognise the country’s high and sustainable growth, stable consumer prices and steady stream of dollar income from an increasingly diversified list of sources.

The Philippine economy grew by 7.4 per cent in the first three quarters of the year, beating all major economies in Southeast Asia. Inflation likewise averaged 2.8 as of November, slightly below the low end of the central bank’s official target range of 3 to 5 per cent for the year.

The country also enjoys a structural current account surplus, thanks to dollar income from remittances from migrant workers, revenue from the business process outsourcing (BPO) sector and the booming tourism industry.

Tetangco said the Philippines’ sound economic fundamentals, which also include a stable banking system and a growing foreign exchange reserves, should protect the country from the worst effects of the Fed’s tapering.

Recent economic reports showed several signs of an improving US economy, which would prompt the US Fed to scale back its asset purchases.

The US Fed has been buying $85 billion in mortgage-backed securities and US treasuries a month since late 2009 to prop up the world’s biggest economy by pushing interest rates downward. These asset purchases have forced investors to bring their money to emerging markets in Asia where returns are higher.

Tetangco said rising interest rates in the United States should also lead to higher borrowing costs for both businesses and households in the Philippines.

The repatriation of foreign money from emerging markets should also weaken currencies in the region, including the peso.

“That’s not entirely bad. It has some positive influence on monetary expansion, on exchange rate movements and therefore on the economy through the competitiveness of exports,” Tetangco told reporters.

A weaker peso will make the country’s exports cheaper for foreigners to buy, leading to higher demand.

Tetangco said that while the peso was expected to weaken due to the tapering, the BSP would ensure that the currency’s value moved in an “orderly” manner.

“The peso will go where orderly market conditions take it. If the movement becomes disorderly, the BSP will be there,” Tetangco said, referring to the central bank’s intervention in the foreign exchange market through its open market operations.

 

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