Peso, stocks tumble on disappointing economic data
The local stock barometer slumped to a three-year low while the peso slid back to the 59:$1 level on Friday following a disappointing third-quarter economic report.
Weak growth prospects, a deeper-than-expected interest rate cutting cycle and the Philippines’ delicate external position are seen to cement the local currency’s status as one of the region’s underperformers this year.
On Friday, the peso shed 10 centavos to cap the week at 59.04 versus the US dollar, retreating to a key level after fresh data showed economic growth eased to 4 percent in the third quarter, the weakest pace in four years.
On the other hand, the Philippine Stock Exchange Index (PSEi) plunged by 1.31 percent, or 76.22 points, to close at 5,759.37.
Ron Acoba, chief investment strategist at Trading Edge Consultancy, said that the PSEi had gone down by as much as 1.8 percent intraday before trimming losses at closing.
“The lower-than-expected 3Q GDP (gross domestic product) print reflected a confluence of several factors. First is the slowdown in government spending, which normally accounts for about 15 percent of GDP, due to the government’s corruption scandal, which has forced it to slow down project disbursement,” Acoba said in a message.
“It confirms our belief that slower growth is not an inevitable fate but the result of both natural calamities and preventable man-made challenges,” said Astro del Castillo, managing director at First Grade Finance.
“Typhoons and graft problems have undeniably slowed our progress and undermined public confidence,” he added.
In a note to clients, economists at ANZ Research noted that headwinds to economic growth had “intensified” in recent months amid a series of storms that disrupted business activity and the ongoing corruption scandal that had shaken investor confidence.
Such a weakness, they said, would likely prompt the BSP to extend its easing cycle in a bid to support economic growth––a move that could make local yields less attractive to foreign fund flows. This, and the BSP’s higher tolerance for a weaker peso, would likely cap any currency appreciation, they added.
At the same time, ANZ said the Philippines’ persistent trade imbalance would continue to drive local demand for the greenback, adding limitations to the peso’s strength.
“Of late, the peso has strengthened, but only moderately so,” the bank said.
“Even so, we think that depreciation pressure on the currency will remain,” it continued, adding that any support from the seasonal surge in remittances during the holiday season would be “shortlived.”
A weak peso cuts both ways for the Philippines. It can lift remittance inflows from migrant Filipino workers, fueling purchasing power in the consumption-reliant economy.
But it also risks fanning import costs and reigniting inflation. Prolonged currency weakness, meanwhile, could inflate the peso value of foreign debts held by both the government and private companies.
