Anticipating a lighter load on the Philippine peso, Dutch financial giant ING foresees a contraction in the country’s trade deficit from its previous historic peaks.
According to senior economist Nicholas Mapa of ING, the present trade deficit trends suggest that the exceptionally high level of $6.02 billion recorded in August of the prior year is improbable to be attained.
The most recent data from the Philippine Statistics Authority (PSA) discloses a decrease in the trade gap to $4.53 billion in April, compared to $5.32 billion during the corresponding month the previous year and the $5.1 billion documented in March.
In the initial four months of this year, the trade deficit of the nation rose by 4.8 percent to $19.28 billion from $18.4 billion during the same period last year. This upturn occurred due to a 14.9 percent decline in exports to $21.77 billion, while imports contracted by 6.7 percent to $41.05 billion from $43.98 billion.
Mapa acknowledges the less-than-optimistic outlook for exports, considering the challenges faced by regional trading partners in the electronics sector. Consequently, he expects exports to remain lower, at least in the near term, given the crucial role of electronics in the overall export figures.
Furthermore, Mapa highlights the alignment of imports with the projected growth in gross domestic product (GDP) for the first quarter, which is anticipated to be the highest for the year.
Mapa explains that there is an anticipation of a slight weakening of the Philippine peso due to fundamental pressures. However, he does not foresee the currency experiencing the same degree of strain observed in mid-2022.
In October of the previous year, the peso hit an all-time low of 59 to $1 as a result of the US Federal Reserve’s aggressive rate hikes to combat inflation and the increased demand for dollars due to the reopening of the economy following the relaxation of strict COVID quarantine and lockdown protocols.
The peso experienced a rebound in February, reaching the level of 52 to $1, making it the leading currency in the region. However, it has since depreciated to 56 to $1 due to the tightening cycle implemented by the BSP (Bangko Sentral ng Pilipinas) to maintain a favorable interest rate differential with the US, along with its active engagement in the foreign exchange market.
From the end of the previous year, the local currency has weakened by 0.5 percent, currently standing at a rate of 56.05 to $1 as of the last Friday, compared to the end-2022 level of 55.755.
During its 185th meeting, the Development Budget Coordination Committee (DBCC) revised its assumption for the peso-dollar exchange rate in 2023 to a range of 54 to 57 per $1, lower than the previous range of 53 to 57 for this year.
The DBCC predicts that the local currency will generally remain stable within the range of 53 to 57 between 2024 and 2028, citing structural inflows of foreign exchange and substantial international reserves as supporting factors.
The DBCC has also adjusted its growth projections for goods exports and imports for this year, reducing them to one percent and two percent, respectively, from the previous estimates of three percent and four percent. This adjustment reflects the current global demand outlook and short-term trade prospects.
In the medium term, it is expected that these figures will stabilize at six percent and eight percent, respectively.
How Is This News Relevant to Stock Traders and Investors?
This news is relevant to stock traders and investors in the Philippine Stock Exchange as it provides insights into the potential weakening of the Philippine peso, which can impact import and export dynamics, foreign exchange rates, and overall market conditions, influencing investment decisions and portfolio strategies.
Foreign Exchange Impact
The potential weakening of the Philippine peso highlighted in this news can have a significant impact on the earnings and profitability of companies listed on the Philippine Stock Exchange (PSE). A weaker peso may affect the cost of imports, potentially increasing expenses for companies that rely heavily on imported raw materials or products. Conversely, companies with export-oriented operations may benefit from a weaker peso as their earnings in foreign currencies are translated into higher peso amounts.
Export-Dependent Industries
The news mentions challenges in the electronics sector, which is a crucial industry for the Philippine economy and the PSE. Stock traders and investors closely following electronics companies listed on the PSE will be interested in understanding the potential impact of these challenges on the sector’s performance. A decline in exports due to global demand concerns can impact the revenues and profitability of these companies, influencing investment decisions in the sector.
Overall Market Sentiment
The news about the trade deficit narrowing and the potential weakening of the peso can contribute to the overall market sentiment on the PSE. Stock traders and investors track macroeconomic indicators and factors that can affect market conditions. Any developments in the trade deficit and currency valuation can influence investor sentiment and market trends. Understanding these dynamics helps investors assess risks, make informed decisions, and adjust their investment strategies accordingly in the Philippine Stock Exchange.
Check out the stock market consultancy service of Equilyst Analytics to get guidance on how to preserve your capital, protect your gains, and prevent unbearable losses when trading or investing in the Philippine stock market.
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