The Philippine peso is gaining in strength as the country’s economy starts to shine. With the currency performing well against the US dollar and the trade deficit narrowing, expectations are high heading towards the end of the year. Indeed, with new investment coming in and inflation picking up speed, hopes are that 2020 will prove profitable for the Philippines.
News up the uptick in performance for the peso came courtesy of Dutch bank ING. Analyzing what it described as an “overly aggressive” hike on interest rates by the country’s central bank, the current state of affairs appears positive. Although Rappler.com’s JC Punongbayan points out that recovery is a relative term and that certain areas of the economy are still struggling, there has been growth.
With international investors seeing opportunities in the low-rate, high-yield environment, money is starting to flow. According to figures released on November 7, 2019, GDP improved by 6.2 percent during the third quarter. That’s not only an improvement on the 5.5 percent growth rate in Q2 but also the first time in two years the economy has hit government targets. To achieve 6 percent growth for the year, a figure that would exceed World Bank projections of 5.8 percent, the economy needs to expand by 6.7 percent in Q4.
That’s a tall order but one that could be possible given the recent results. Agriculture and industry both performed well during Q3 and ICT innovations are on the rise. These have helped offset the slip in services revenue. In fact, the uptick in agricultural earnings is made more impressive given the current problems facing the sector. In addition to a 60 percent drop in sugarcane product, African swine fever has ravished the country’s pig industry. However, with corn production and forestry revenue up by 24.1 percent and 17.3 percent respectively, gains are being made.
For those who partake in the currency exchange markets, news of the strengthen peso will provide food for thought. With online forex trading sites such as Financial Brokerage Services predominately focusing on the Asian market, activity could be set to increase in the coming months. Indeed, with the peso starting to make noise, traders interested in a combination of regulated markets and leverage up to 1:3000 will look to get in on the action. While no investment is ever certain, the latest data suggests that the peso is a solid bet moving into 2020.
However, as Punongbayan points out, caution is advised. Yes, the Philippine economy performed well in Q3, but it’s not all sunshine and rainbows. The most notable issue still plaguing the country’s finances is private investment or its lack thereof. Although commercial investments have improved, private ones have fallen. In Q2 the numbers took a dive for the first time in seven years, and it was more of the same in Q3. Although to a lesser extent, the downswing is a sign that changes need to be made.
In addition to slowing production rates for cars and telecoms equipment hurting private investments, trade has stagnated. Although import/export figures did not fall in Q3, they failed to improve. Overall, international trade didn’t move the GDP needle. For a country looking to achieve sustainable growth above 6 percent, a lack of import/export income is a major problem and one that will need to be addressed in 2020. Unfortunately, even with the US/China trade war creating new opportunities for Asian exporters, the Philippines is a relatively small player within the market and unable to fully capitalize on this.
Despite the ongoing issues, the Q3 financials have given businesses, traders and the government something to smile about. It may not be the boom needed to drag the economy out of the red and into the pink or black. However, it is a start. If Q4 growth can reach anywhere near the same level as Q3, the economy can end the year on a high and, potentially, parlay that into a profitable new year. Indeed, if all goes well, the Philippines could achieve the 6.1 percent growth rate predicted by the World Bank in 2020. Moreover, it can solidify its reputation as one of Asia’s fastest-growing economies.