Peso drop not a sign of economic weakness
The Philippine economy remains strong despite a weakening peso, the Finance department said on Friday as it blamed the depreciation on outside factors such as a brewing trade war between the United States and China.
“Exchange rate movements — whether depreciation or appreciation — should not be taken as a sign of structural weakness in the economy,” the department said in its latest economic bulletin.
A man holds up 100-dollar bills at a money changer along united nations Avenue in Manila. Photo by Russell Palma
The peso, which fell to P53:$1 level earlier this month, gained 17.5 centavos on Friday to close at P53.34 against the greenback.
The Finance department said the currency was moving in tandem with global counterparts that have been affected by escalating trade tensions, higher US Federal Reserve interest rates and the looming end of a European Central Bank stimulus.
It noted that year-to-date, 13 major Asian currencies had fallen by an average of 2.66 percent, with the most depreciated currencies issued by the fastest-growing and most competitive economies.
Since January, for example, the Indian rupee depreciated by 7.46 percent, the Philippine peso by 7.42 percent, Korean won by 5.13 percent and the Indonesian rupiah by 4.97 percent, the Finance department said.
“Note that in the first quarter of 2018, GDP (gross domestic product) growth in India was 7.7 percent; in the Philippines, 6.8 percent; and Indonesia, 5.1 percent. These are among the highest economic growth rates in the world,” it added.
Month to date, meanwhile, the depreciation of the 13 major Asian currencies averaged 1.76 percent, with the most depreciated being the won at 5.13 percent, Chinese yuan at 2.9 percent, Thai baht at 2.88 percent and the Singapore dollar at 1.93 percent.
These were followed by the peso at 1.73 percent and rupee at 1.68 percent.
“The month of June is when the trade war intensified into a barrage of tit-for-tat tariff increases against major trading nations/blocs,” the department noted.
The most affected countries were direct victims of the exchange of tariff increases, it said, with the Philippines and India relatively insulated because exports of goods accounted for a smaller percentage of their economies even as financial markets continued to ride the whirlwind.
“In an environment of global uncertainty where domestic macroeconomic fundamentals are sound — real GDP growth is higher than 6 percent, inflation is within the neighborhood of projected levels, gross international reserves are in excess of eight months of imports of goods and services, BOP (balance of payments) and fiscal deficits are financeable and the debt ratios are declining — the exchange rate should move flexibly so that economic players are able to adjust promptly to market dynamics, thus sustaining economic growth,” the Finance department said.
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