There is much to be hopeful about as the new year gears up. I am seriously thinking that this could be one amazing year.
The most welcome news for me is the continued strength of the Philippine Peso. At the start of 2022, the Peso was trading at around P51 to the US Dollar, rising to a high of P59 in September – a depreciation of almost 18%. At the end of last week, the Peso was trading at below P55, representing an appreciation of around 7% from its high. Of course, we have the seasonal spike in OFW remittances to thank. As well, the US Federal Reserve Bank started to signal that interest rate hikes may start to level off in line with the peaking of inflation.
The very steep decline in the value of the Peso over a rather short period of time – 11% between June and September – was particularly hurtful for importers like the auto industry. There was no way to pass the full increase in import costs to the market. A price hike of 18% would have significantly retarded demand for vehicles at a time when it was just recovering from the setbacks of COVID. As it turned out, the vehicle market ended 2022 at only 85% of pre-COVID sales in 2019. Also, matching the speed of the Peso depreciation would have resulted to price increases every few weeks. This would have thrown the market into chaos since auto purchases usually take a period of time to consummate, especially if it is financed. Auto makers, therefore, had to bear the brunt of the rising import costs and this weighed on bottom lines. I suspect the same is true for other import dependent sectors.
Indeed, the stabilization of the Philippine Peso – and other international currencies, for that matter – augurs well for normalization of trade, consumption and profits. This will, in turn, unlock a more significant return of economic expansion. GDP growth of around 6% in 2022 is a respectable expansion in the face of so many headwinds. This year, GDP is projected at between six to seven percent, setting the country up for a sustained growth trajectory. I recall the statement by the Secretary of Finance, Benjamin Diokno, early on when inflation was breaking away, interest rates were soaring and the Peso was being battered. He said, “we will grow ourselves out of this crisis”. It was a powerful statement that I subscribed to and, fortunately, seems to be proving true.
Another exciting piece of good news is the stabilization of oil prices. This will certainly help tame cost-push inflation and ease the pressures on consumer spending. It will be remembered that the Philippine economy is largely driven by domestic consumption. Restoring price stability will, therefore, be critical in restoring consumer confidence and, accordingly, our consumption-led growth.
One of the perennial woes of businesses is the high cost – not to mention supply – of power in the country. We are highly import dependent for our fuel needs so world oil prices have a very significant impact on costs of production. Lower oil prices are, therefore, very welcome. Additionally, though, it is very encouraging to hear the government’s push for the development of alternative energy sources that will break our dependence on imported fuel. This will, hopefully, reduce our cost of power and augment our very precarious supply levels. The dire situation of power supply and high prices is a serious dampener to the goal of inviting new businesses to set-up in the Philippines or, to an extent, even getting existing foreign investors to expand their operations in the country.
This leads to my other reason for good cheer in 2023: the aggressive push of government to increase foreign investments in the country. I recall President Ferdinand R. Marcos, Jr. mentioned in his first State of the Nation Address (SONA) that one of the goals of his administration is to make the Philippines an investment destination. The President seems to be firmly at the head of this charge with his various trips to our key trading partners, enticing them to put the Philippines back on their investment radars.
A country of over 110 million people with the youngest average age in the region, a highly skilled labor force and a strategically central geographic location in Asia are very compelling reasons to do business in the Philippines. President Marcos is raising the curtains again so potential investors can see the many reasons for them to include the Philippines in their investment map. Coupled with the increasing focus on Public-Private Partnership, this could possibly by an explosive initiative that will cement a sustainable growth for the country.
There is much to be excited about, yes. I can truly see the happy in the new year.
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