46M Filipinos to benefit from peso depreciation

Some 46 million Filipinos, or around 45.55 percent of the country’s population, stand to benefit from the peso depreciation against the US dollar, First Metro Investments Corp. (FMIC) and the University of Asia & the Pacific (UA&P) said Tuesday.

The investment banking arm of the Metrobank Group and the University of Asia & the Pacific (UA&P) noted that a weak peso may seem negative but its short and medium-term impact is positive.

“The most obvious effect of this would be to discourage imports and produce more exports, thus, reducing the trade deficits over the medium-term. And because of the increase in production locally, it will boost employment generation,” said FMIC and UA&P.

The second positive effect is that it will boost the peso income of families that depend on overseas Filipino workers (OFWs), as well as exporters and those that supply raw materials to exporters.

“There are about 10 million OFWs, and with an average family size of 4.6 members, the peso slide benefits some 46 million Filipinos,” FMIC and UA&P said in an emailed statement.

The Philippine peso on Monday closed at P53.44 per $1. Earlier this month, the local currency closed at P53.48:$1, its weakest in nearly 12 years since closing at P53.55:$1 on June 29, 2006.

According to FMIC, majority of the Filipino households will benefit from the peso depreciation which would be net positive in the short and medium-term.

“Add to that the number of families dependent on exports, which account for 30 percent of GDP (gross domestic product), plus those that supply raw materials to exporters, we can easily conclude that a vast majority of Filipino families benefit from the higher peso-dollar exchange rate,” FMIC and UA&P said.

External factors or concerns overseas such as the impact tax cuts in the United States, 4and the Federal Reserve’s move to raise interest rates mainly caused the recent peso depreciation.

FMIC and UA&P also cited the stock market sell-off and the widening trade deficit.

“Foreign stock and bond investors are selling off their peso-denominated financial assets as they stand to lose with the peso depreciation. Foreigners have been net sellers in the local stock market by a total of P52 billion ($1 billion) from February to May this year,”

The Philippine trade deficit has been deteriorating to reach a record $3.6 billion in April this year.

In the first four months of 2018, the trade deficit totaled $12.2 billion. In simple annualized terms, multiplied by three, the deficit would be $36.6 billion or more than 20 percent wider year-on-year.

“However, this should not be viewed too badly as imports of capital goods (additions to productive capacity) have shown robust growth,” according to FMIC and UA&P.

Another economist earlier this month said that the peso depreciation may be beneficial to Philippine exporters, but this may spur inflationary pressures and impact on the purchasing power of the public at large.

“When the peso-dollar exchange rate crossed the P53/dollar on June 11 a lot of people including foreign analysts raised their “worried” flag. The days thereafter, the peso slid further to some 5.8%, higher than the P50.40/dollar average in 2017,” FMIC and UA&P noted.

“This poses the question: Should we worry?”

“If we take a longer view, the peso has actually appreciated by only 4.6 percent from 2004 to June 13, 2018, while our neighbors Indonesia and Vietnam had large cumulative depreciations in excess of 40 percent during the same period,” FMIC and UA&P said.

“Malaysia also shows net depreciation during the period,” they added.

“In conclusion, while the current weakness of the peso might seem negative, its impact in both the short and medium-term is net positive,” FMIC and UA&P said. —Jon Viktor Cabuenas/VDS, GMA News