The economy may be in for a rough ride this year, given the specter of rising US interest rates and crude prices, a new president in the United States and President Rodrigo Duterte’s unpredictability.
The Philippine macro-economic fundamentals have so far been kept intact by economic managers, but the phased US interest rate hike this year will surely weaken the peso further against the American dollar and curb investments in the local stock market, as foreign fund managers seek more attractive returns elsewhere.
President Duterte’s fiery outbursts and his repeated diatribes against donor countries and international figureheads are certain to dampen the sentiments of foreign investors and may eventually translate into lost investment opportunities. The stock market in the latter part of 2016 entered the bear territory—the index lost 16 percent from a peak in mid-July to end the year down 1.6 percent—while the peso teetered toward the 50 level against the greenback.
But the Philippine economy can weather numerous challenges in the global economy, local political distractions and President Duterte’s foul mouth as long as Manila sticks to its plan of ramping up infrastructure spending and keeping the fiscal house in order.
The country’s three main dollar earners—migrant Filipino workers, business process outsourcing companies and tourism—will continue to churn out revenues to cushion the downward pressure on the peso. The promised infrastructure spending, meanwhile, will hopefully generate jobs that, in turn, increases domestic consumption.
The inflation rate may act up in the wake of firmer crude prices abroad, while local interest rates could tick up (which means higher cost of money) in response to the US Fed move.
Despite the changing global economic landscape, however, the Philippine economy is poised to expand solidly, thanks largely to a big population and the vibrant domestic demand. The growth path will not likely reverse its course, unless Mr. Duterte makes a U-turn and tears up the economic fundamentals built by his predecessors.