POSTSCRIPT / January 8, 2015 / Thursday


Opinion Columnist

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Tetangco: Phl ready for economic tests

RESILIENCE: The Philippines’ underlying resilience helped carry it through the tests of 2014, emerging in the new year better prepared to withstand further pressures, according to Bangko Sentral Gov. Amando M. Tetangco Jr. reporting Tuesday on the state of the national economy.

• On the GDP, with the government expected to increase public spending this year, the Development and Budget Coordinating Committee projects real gross domestic product growing at 7.0 – 8.0 percent, which is above the long-run average of 4.9 percent.

• On inflation, the Bangko Sentral’s latest baseline forecasts suggest that inflation will remain within the government’s target of 2-4 percent. With the December inflation at 2.7 percent, 2014 (with an average of 4.1 percent) has become the 6th year that inflation stayed within the target range.

• On remittances, overseas Filipinos sent home some $20 billion last year, helping fuel demand for goods and services, including food, household needs, education, debt payments, houses, appliances and motor vehicles.

• On the peso, there is some depreciation pressure, as the US dollar continues to gain strength. Fortunately, as seen in past similar episodes, when the noise dies down in the markets, investors tend to go back to assessing the merits of individual economies.

Tetangco voiced guarded optimism, noting that despite the moderation of the past year owing to slower agricultural production and lower public spending, “economic growth remained robust, supported by a broadening production base and solid domestic demand.”

In sum, he said the country is well placed to deal with the continued economic challenges this year. He added that the Bangko Sentral has “sufficient policy space to deploy monetary tools as and when needed” and that “our external payments strength continues to provide some cushion against shocks from external sources.”

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INFLATION: Reviewing last year’s performance, Tetangco reported:

“Inflation spiked from May to August, which resulted in elevated inflation expectations, putting our inflation target at risk then. The Bangko Sentral carried out calibrated tightening measures. We raised our reserve requirements, SDA and policy rates. These actions also helped prepare the markets for policy normalization in the US. These measures coupled with the decline in international oil prices and improved domestic rice supply helped bring year-to-date inflation back to within target range.

“The peso’s movements throughout the year reflected the shifts in market sentiment. The strong capital outflows in Q1 caused the BOP position to turn negative. For the first 11 months of the year, the BOP stood at minus $3.7 billion. Nonetheless, strong remittances and BPO receipts kept the country’s current account in surplus and helped support the peso. The GIR remains ample at nearly $79 billion at end-November, and is able to cover more than 10 months’ worth of imports and payments for goods and services.

“The Philippine banking system sustained its health and reach. In fact, our banking system is the only one which Moody’s rated with a positive outlook from among the 69 jurisdictions that it reviews. In raising the country’s credit rating to one notch above the minimum investment-grade rating, Moody’s cited the government’s efforts to reduce debt, improve fiscal management, and minimize vulnerability to external developments.”

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GLOBAL CONTEXT: Against a diverse global backdrop, Tetangco said 2014 was a difficult market to call, describing it as a year of reversal and divergence.

He noted that unlike in 2013, when most everyone in the global markets was calling for easy money and the game then was “search-for-yield”, the “emerging market economies were the darling of investors, and inflation was nowhere in any policy maker’s radar.”

In 2013, he said, “the talk of Fed taper spooked the market, causing capital flow reversals from EMEs and depreciation pressures in their currencies. But when the Fed taper got well on its way in 2014 and market perceived this to be ‘orderly’, the market calmed down. Inflows to EMEs resumed, and the EME currencies began to appreciate again.

“But then, good economic numbers started to come out of the US, and the Fed began to talk about ending easy monetary policy by 2015,” he said. “These two factors helped create a sound base for an outlook for a strong US dollar, causing EME currencies to revert to depreciation mode.”

Elsewhere, however, the European Central Bank and the Bank of Japan were not quite as ready as the Fed to pull the plug on liquidity. Their monetary actions were initially seen to not be working to stimulate their economies to grow.

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UNEVEN GROWTH: While all this was happening, Tetangco pointed out, oil prices had begun their descent. By end of 2014, the price of oil had fallen to about half from the year’s high of $115 in June to $57 per barrel.

He continued: “With this as global economic backdrop going into the new year, I am not sure 2015 would be any easier to call. For one, global growth prospects remain uneven. While a robust economic recovery is seen to be under way in the US, economic activity in the Euro Area continues to struggle for some traction.

“The Japanese economy has recently fallen into a technical recession. The outlook for emerging markets has become relatively more subdued as well, as key emerging markets such as China grapple with structural bottlenecks that make growth more challenging.

“The unevenness of global growth prospects, in turn, could provide the motivation for continued divergence in the monetary policies among the advanced economies. There are continuing geopolitical concerns that can override the declining path of international oil prices. Among these are the unrest in the Middle East and Russia.”

(First published in the Philippine STAR of January 8, 2015)

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