Brokerage firm sees upside to peso downswing

MANILA, Philippines—The recent decline in the local currency’s value has provided a boost to economic activity, increasing the peso value of every dollar earned by families dependent on remittances from overseas Filipino workers (OFW).

Brokerage firm Philippine Equity Partners (PEP) said the peso’s depreciation amplified the economic effects of the modest growth in remittances last year, and would continue to do so this year.

“The peso value of remittances rose in the high teens,” PEP research analyst Jojo Gonzales said at an economic briefing this week.

Remittances rose to a record $22.8 billion in 2013, up 6.4 percent year on year to bear the central bank’s projection of a 5-percent uptick.

Officials attributed the growth in remittances partly to OFWs with families in the Visayas sending more money to finance the reconstruction of homes lost to Super Typhoon Yolanda.

Gonzales said the weaker peso helped raise the purchasing power of remittance-dependent households.

Every unit depreciation of the peso’s value translates to about P25 billion in additional cash in the hands of OFW families, Gonzales said.

Apart from remittances, the expected continued expansion in bank lending would also remain a source of strength for the domestic economy.

Outstanding loans held by universal and commercial banks rose by 16.4 percent at the end of 2013, accelerating from 14.8 percent the month before.

Gonzales said the recent growth in domestic liquidity should push banks to lend more to businesses and households.

Domestic liquidity rose by 32.7 percent in December 2013, significantly higher than the 12- to 14-percent range considered “normal” by the central bank.

PEP, which serves as Bank of America-Merrill Lynch’s research partner in the country, said the Philippine economy, as measured by gross domestic product (GDP), is expected to grow by 6.2 percent in 2014.

This would be slower than the 7.2-percent expansion in 2013.

One potential drag to economic growth, Gonzales said, would be capital outflows from the country’s financial markets as more investors decide to shift their funds to advanced economies.

Another downside risk to economic growth is a slowdown in public spending, brought on by investigations on the government’s pork barrel funds.

“Will the government be able to spend as long as discretionary spending remains under scrutiny?” Gonzales asked.