Strong peso to hurt Philippine economy

pesoThe strengthening of the Philippine peso against the US dollar, in tandem with higher inflation, will be among the factors that could cause the country’s economic growth to slow to 5.5 per cent in 2013 and 2014 against earlier predictions of above 6 per cent, US-based investment bank Goldman Sachs said in a briefing on May 23 in Manila.

Mark Tan, ASEAN economist of Goldman Sachs, said the country’s GDP growth will be around 5.5 per cent in the next two years and an average of 5 per cent between 2013 to 2016. These forecasts are lower than the government’s projection of 6 to 7 per cent in 2013, and 6.5 to 7.5 per cent in 2014.

Goldman Sachs projects the peso to strengthen further to 37.5 pesos to the dollar in the next 12 months from March 2013 from its current level at above 41 pesos.

The bank in a report forecast inflation in the Philippines to increase to 4.2 per cent in 2013 before slowing to 3.8 per cent in 2014. Tan said some of the inflation drivers include the strong domestic demand and robust credit growth in the Philippines. The inflation rate stood at 3 per cent in the first quarter of 2013 and at 2.6 per cent in April.