Peso volatility to affect realty, retail industries

Following the continuous whining of the exporters on the volatility of the peso, it looks like the real estate and retail industries are heading the same way as consumer demand in the country tends to slow down owing to the unstable currency.

Economist Cayetano W. Paderanga said the retail industry is bound towards turbulent times as the main driver of the sector, the Overseas Filipino Workers (OFWs), are now weighing their spending priorities due to the dwindling value of their hard-earned dollars.

Aside from the retail and real estate sectors, other OFW-dependent industries are most likely to suffer the same fate, however, the education sector may still benefit from OFW remittances as it remains atop the list of priorities of most Filipinos working abroad.

Paderanga was in Cebu yesterday as the speaker of the CIBI Information Inc., and WealthBank Mid-Year Economic Briefing held at the Waterfront Cebu City Hotel and Casinos.

Paderanga, a former Bangko Sentral ng Pilipinas (BSP) monetary board member said the movement of the currency cannot be intervened as BSP now observes stringent regulations. The only way they can manipulate the peso exchange rate is to “buy and sell papers.”

BSP can only issue money if there is a need for it, what happens now is there is an overflowing liquidity in the banking system, and the new law mandates BSP to not directly lend money to the government.

Thus, BSP now has limited power to intervene the movement of the peso, which has affected the dollar-earning Filipinos, like the OFWs, export sector, including the Business Process Outsourcing (BPOs).

From 2005 to 2007 OFW remittances pushed strong consumption in the Philippines, however, now the momentum may slow down as the value of OFW earnings have declined in value.

The Institute for Development and Econometric Analysis (IDEA), of which Paderanga sits as the chairman of the board, projects that personal consumption expenditure will stay at 6.1 percent growth from 2007 to 2008. While exports will continue to decline in the next six months to one year due to peso appreciation, and softening of global demand.

In general, the improving Philippine economy will be driven by the services sector such as health, hotels, and restaurants, BPOs, although the rapid peso appreciation has become a concern for this sector. – Ehda M. Dagooc