THE Bangko Sentral ng Pilipinas (BSP) said policy shifts—triggered by global politics and monetary-stance direction—will be the main sources of headwinds for the Philippine economy this year.
BSP Governor Amando M. Tetangco Jr. said they have identified three foreseen risks to the local economic landscape that are expected to set the tempo of the economy’s ups and downs for the year.
These three risks include the seeming trend of retreat from a more open global trade relations across the globe to protectionism; the uncertainty caused by the anticipation of the United States Federal Reserve’s interest-rate normalization; and local disruptions, such as new government reforms and weather disturbances.
“We are mindful of these global market volatilities because the Philippines is not immune to the repercussions of global headwinds. In addition, we also have home-grown risks and ‘noise’ to deal with. Indeed, the evolving nature of uncertainty in both the global and local environments require that we be vigilant,” Tetangco said in a recent speaking engagement.
In view of the seeming trend of retreat from a more globalized trade relations, the BSP chief said policy-makers’ focus on so-called inward-looking policies, or their decision to close their economy from outside trade, could dampen the outlook for overall economic growth. “We are seeing the rise of populist sentiment around the globe. Brexit and the Trump win are manifestations of this trend. In addition, both of these events reflect a preference for protectionist policies. Some analysts have called the latter a ‘retreat from multilateralism’. With continued global growth weakness, this retreat from multilateralism is encouraging countries to also look more toward domestic sources of growth,” Tetangco said.
“If the shift to inward-looking policies gains traction, this can potentially further shrink global trade, which could lead to even lower global growth,” he added. Closer to home, Tetangco said the “retreat from multilateralism” could disrupt the country’s overseas Filipino workers’ (OFW) deployment and remittances, as well as cause slowdown in the business-process outsourcing (BPO) sector, thereby hurting domestic consumption.
Latest data from the central bank showed the money sent home by OFWs declined by 3 percent last October to hit $2.1 million for the month, falling from the $2.16 million in the same month in 2015 and the $2.38 million last September.
The weaker value of the peso during the period pushed Filipino migrant workers to send fewer dollars, with the total remittance flows last October registering a contraction for the third time in 2016.
The second risk Tetangco mentioned comes from the US Fed’s future policy-rate actions.
In its latest meeting, the Fed made hints that it would raise rates three more times in 2017.
“If the Fed veers from this, volatility in both the global and domestic foreign-exchange and fixed-income markets could rise,” Tetangco said.
The local currency has already been under pressure in the last quarter of the year, owing to the confluence of several factors, including investor concerns over local and international politics, as well as the shifting monetary policy in the world’s largest economy.
The peso, in particular, touched the 50-territory in 2016, which prompted local economic managers to adjust their peso assumption for 2016 to 48 to 50 to a dollar from the earlier 45 to 48 against the greenback.
“Third. In addition to these external risks, we also have risks emanating from the domestic front, such as political noise and adverse weather disturbances. Moreover, while the administration has committed to ramp infrastructure spending, they could be forced to cut back on this, should revenues from the proposed tax-reform package fall short of expectation, as indicated by the secretary of finance,” Tetangco said.
“If critical infrastructures are not built on time, this could hold back the country’s current economic-growth momentum,” he said.
PHL strong enough
No matter the risks, the governor—who is scheduled to end his term in mid-2017—remains optimistic of the prospects for the economy for the year.
“Should the risks I mentioned earlier materialize, we have ample policy space to respond. There is enough room for monetary policy to support the economy,” he said.
“Given the external headwinds, our defense system is reliable. Our flexible exchange-rate policy provides us with a tested tool to shield the economy from temporary gyrations, while our adequate reserves and sustained current account surplus fundamentally anchor our external position,” he added.