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Philippine Response to US Government Shutdown 2013: Economic Forecast beyond 2014

Updated on September 29, 2014
Department of Finance Seal
Department of Finance Seal | Source

Overview

The recent government shutdown in the United States (US) may have devastating effects on the Philippine Stock Exchange, if the deadlock situation is not resolved soon.

It will most likely affect investments and exports since the US is a major trading partner of the Philippines. Approximately 12 percent of the country’s merchandise exports amounting to around US$610 million comes from the US.

With this gloomy scenario, the country has to diversify its exports and investment portfolio to lessen the impact of the shutdown.

The country's top financial leaders headed by Central Bank Governor, Amando Tetangco, Jr., had indicated that the immediate effect of the shutdown would be on market volatility, where we are bound to see investors pulling away from riskier investments to safer financial instruments.

Nevertheless the financial think-tanks in the country are confident that the Philippine economy is resilient enough and have built buffers to counter this bleak scenario.

Source

Economic Outlook

Historical data would prove that --- in case the market experiences extreme volatility, the Central Bank --- as a matter of fiscal policy, would most likely come in and stabilize the market.

This outlook was shared by the Finance Secretary, Cesar Purisima, when he pointed out that the Philippines is in a better position to face the US Government’s shut down than other emerging economies.

The Finance Department had reiterated on the country’s strong fiscal policy , trade surplus based on consumption-led growth, and a young and well-educated labor force --- that would help ride it out of the bleak situation.

The country is seen to be in a better position as compared to other emerging economies that are export driven and extractive-directed.

The Philippine Stock Exchange Inc.

Source

Is the country now equip to survive the US economic fall-out?

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Philippine Stock Market

Period Of Uncertainties

There are fears that the US lawmakers would not be able to strike a doable solution on the debt ceiling and may cause the US to default on maturing obligations. Any default is considered to contribute further to chaos and panic in the financial markets.

Nonetheless, with the robust Philippine economy that showed a growth rate of 7.6 percent as of the end of the second quarter of the year, it would be safe to assume that the local economy would be able to ride the political turmoils that now ails its trading ally.

However, it is necessary for the US Congress and President Obama approves the government’s budget at the soonest time possible. Further delay can shake the financial markets at its very core.

With the country’s strong macro economic foundations, the Philippine Stock Exchange can be expected to swim it out and remain bullish until the remainder of the year - which is the general sentiment of most top ranked financial analyst.

The equities market was on the red last week due to uncertainties in the US budget. It has recovered by Tuesday, gaining 52.6 points or 0.85 percent to 6,244.40.

Source

Little Known Facts About The Philippines

  • GDP for three years are 6.8%, 7.7%, and 7.5% for 2011, 2012, and up to the 2nd quarter of 2013 - making the country with the highest growth rate in Asia;
  • Grouped with countries known as emerging markets or newly industrialized countries;
  • Reported by the IMF in 2011 as the 45th largest economy in the world.


Source: http://en.wikipedia.org/


The Financial Sector

The performance of the sub-indices showed that the gainers were --- holding firms that went up 58.69 points or 1.07 to 5,531.96; while the losers were--- mining and oil that went down 21.82 points or 0.18 to 12,228.87.

Justino Calaycay, an analyst at the Accord Capital Equities Corporation, is optimistic that once the US budget and the debt cap issues were resolved, the local markets will be more bullish and would hold on to equities.

The financial sector is confident that the Philippines will survive the present scenario, especially when the country has just recently been given by the Moody’s Investors upgrade to a sovereign rating of an investment grade.

This was widely cheered by the local bourse which saw the Philippine Stock Exchange Index (PSEi) upped by 0.40 percent or 25.39 points to 6,387.65---a rebound from early losses. The upgrade by Moody’s came about as a result of a robust economy, consolidation of debt and fiscal policies, and political stability.

Philippine Economic Growth

YEAR
%GDP
% GNI
2011
3.7
2.6
2012
6.8
5.8
2013 Q2
7.5
6.8
Computed at constant 2000 prices Source: NEDA and NSCB

Profile of the Filipino Stock Market Investor

Data accdg. to the 2011 report by the Philippine Stock Exchange.
Data accdg. to the 2011 report by the Philippine Stock Exchange. | Source

UPDATE ON THE PHILIPPINE ECONOMY AND FINANCIAL TARGETS

At the beginning of the year of 2014, the Moody Report projected a positive economic scenario for the Philippines, which is seen to outperform its neighbors in Asia. The upgrade of the Philippines by Moody's Investor Service, boosted business and investor confidence. The GDP (Gross Domestic Product) grew to 7.4 average in the first three quarters of 2013. The Philippines, along with the Asia-Pacific region, is on an economic upturn, with an exponential growth rate in national economies.

All sectors --- from manufacturing, industry, and infrastructure have all been positive. The Philippines, by Moody's own account, is a "rising star" with an expected growth rate reaching 8 percent by 2016. Moody's analytics cites good governance and adherence to the 2011-2016 development blueprint that gave impetus for instituting reforms in both national and local levels.

More recently, the International Monetary Fund (IMF) foresaw a growth trend of 6.3 percent in 2014, an uptick from the previous figure of 6 percent, made September this year. The expected growth is seen to increase to 6.5 to 7 percent by 2015.

The Philippines is seen to be the fastest growing economy among the ASEAN 5 ---Indonesia, Malaysia, Thailand, Singapore and the Philippines. The country is expected to ride the tide of an improving global economy, which is seen to grow by 3.7 this year and 3.9 by 2015.

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