Peso to further weaken in 1st semester

CEBU, Philippines - With the onset of a slowdown in export earnings and remittances coupled with a bleak investments outlook, a weaker Philippine peso is anticipated in the first half of this year.

However, early signs of a recovery in the global economy toward the end of the year could prop up the peso value versus the US dollar in the second half of 2009, an economic weather report released by Metrobank research department bared.

Moreover, the Bangko Sentral Ng Pilipinas (BSP) expects a continuing external surplus and ample foreign reserves to support the local economy.

Still, research forecasts have it that the peso will average at P49 in the first quarter of this year and P53 by year-end, assuming the current risk-aversion does not lift.

However, upside potential running towards P43 per dollar towards year-end can happen should risk aversion and the dollar come under pressure.

The peso ended in 2008 as the third worst performing Asian currency, a sharp drop from its post in 2007, amid concerns that the economic gloom is hurting Philippine exports and as global fund managers with substantial investments in emerging markets like the Philippines repatriate funds to the US.

The local currency capped the year (2008) at P47.52, a 13 percent of P6.24 weaker that its 2007 value.

In November of 2008, the peso almost broke the P50 level as plans to revive the imperiled US financial sector failed to soothe jittery investor sentiments.

However, seasonal Overseas Filipino Workers (OFWs) remittances gave the local currency a boost in December.

Remittances in the first 10 months of 2008 rose 15.5 percent year-on-year to US$13 billion.

According to the report, the year 2008 was a period of transition for the global economy, from a sustained period of very strong developing country-led growth to a period marked by uncertainty as a financial crisis rooted in high-income countries stunned financial markets worldwide.

Commodity markets have also seen dramatic swings in the past year amid supply-demand issues. The effect of the crisis eventually rippled to other economies, thus slowing down economic activities in both developed and developing countries.

Moving forward, the downward trend is expected to intensify, driven by a sharp decline in investments growth in developing economies and a slowdown in global trade.

However, the Philippines is not seen to slip into a recession and is expected to chum in modest growth figures. Nevertheless, policy responses to the crisis will indeed play a large role in shaping domestic economic outlook.

Metrobank's outlook also indicated that the year 2009 might be the year when the full impact of the crisis will be felt.

The research further warned that there are too many factors to be considered, too many things at play, too many new things happening at once that are not found in the playbooks, that it will be very hard to call what 2009 will be like.

"In a world when the rulebooks are being tossed out and ad hoc measures become the rule of thumb, uncertainty and risk aversion will be the dominant themes that will bind everything together," the research result concluded.