Strong Peso may dent OFW remittance and Philippine exports, growth
The export sector is likely to take a hit again if the Philippine Peso continues to strengthen, analysts said.
The Philippine peso has been trading at a four year high for the past few days, with the local currency opening Thursday at 41.49 Pesos vs. the USD. Analysts note that this will reduce the competitiveness of Philippine exports, denting the country's growth.
"The effect of a strong peso on growth is negative," Benjamin Diokno, economics professor at the University of the Philippines, said .
Professor Diokno said the a "strong rebound" for the export sector is unlikely owing to continuing weakness of the global economy and the unabated strengthening of the local currency.
Reports that the US Federal Reserve would implement a 3rd round of Big Stimulus, to support the US economy, has bolstered confidence in emerging economies. This is because investors expect that supporting US growth will spill over to developing economies. The strong peso movement in fact tracks the performance of other Asian currencies.
Jonathan Ravelas, market strategist for Banco de Oro, said that news on the US stimulus will continue to push the USD lower, and the Peso to test the 41-41.25 range.
The export sector, which accounts for 40% of the Philippine gross domestic product, is forecast to grow 10% this year. This is a turnaround from last year's weakness, with export revenues falling by as much as 27.4% in September 2011, a 2 yr low. Exports were cited as one of the factors that slowed last year's GDP to 3.6%.
Initial data showed the export sector may be on the up-trend. Cumulative merchandise exports for the first seven months rose 7.7% on year to US$31.56-B.
But that may not continue for the rest of the year if the Peso continues to rise.
"The strong Peso will make exports expensive and imports cheap. This can drain foreign reserves and worsen balance of trade," Cid Terosa, economist at the University of Asia and the Pacific.
Terosa added this is further aggravated by the decline in the export of electronic products — the country's top export earner — owing to a global slowdown.
The National Statistics Office said electronics export revenues have been declining since April. In July alone, export revenues from electronics decreased by 11.2% as compared with the prior month.
"It could be difficult to achieve export growth target this year if electronics exports continue to fall," Mr. Terosa said.
