The Philippines would benefit the most from the decline in commodity prices, with the peso expected to bounce back to the 45 to $1 level by mid 2009 as the balance of payments recovers despite the global economic slowdown.
Swiss banking giant UBS said yesterday that the recent commodity boom had been more about price changes than production, with rising commodity prices transferring income away from households towards commodity producers.
If commodity prices start declining, UBS said the impact on countries in Southeast Asia would be varied in the context of a global slowdown.
The Philippines, according to UBS analyst Edward Teather, would be the key beneficiary if commodity prices declined sharply.
“The abatement of the uptrend in commodity prices, or even just a modest decline, should be positive for the peso,” Teather said.
Teather said the exchange rate would go in favor of the peso to 45 by mid-2009 and further up to 44 to the dollar and possibly even as high as 42 to the dollar by end 2009.
“We found that consumption growth clearly suffered in Thailand and the Philippines in the first half of 2008,” Teather said. “If inflation comes off, consumer-related equities could see a benefit from improved household purchasing power those economies.”
Moreover, Teather said farmers in the Philipines that have large agricultural workforces might benefit from a profitable second harvest since the initial harvest this year might have been sold to millers/middlemen before the spike in rice prices.
According to Teather, the Philippines would gain from a stabilization or decline in commodity prices relative to Indonesia and Malaysia. “However, the relative gain may be outweighed by the negative connotations of the global slowdown,” he said.
Despite record-high remittances from overseas Filipinos, economists said an increasingly anaemic consumer spending, among other factors, would trim growth down to 4.6 percent this year and 4.4 percent in 2008.
Although the country’s second quarter economic slowdown is not surprising, economists said the details of the national income accounts indicated potentially lasting economic slowdown.
Economic growth was recorded at 4.6 percent in the second quarter of the year and the National Economic and Development Authority (NEDA) also revised its first quarter report, showing that the economy expanded only by 4.7 percent and not 5.2 percent.
Economists earlier said this suggested that the overall economic trajectory remained weaker than initially thought, with exports unlikely to sustain this growth pace especially since imports in the second quarter actually contracted by one percent as a result of slowing global demand growth.