MANILA, Philippines (UPDATED) - Already strong, the peso can further appreciate to P37.50 against the US dollar in the next 12 months.
This was the forecast that Singapore-based Goldman Sachs ASEAN economist Mark Tan announced during a roundtable with business journalists on Thursday, January 31.
He cited the influx of portfolio investments in the capital markets, the continuing weakness of the US dollar, and the robust growth of ASEAN countries, including the Philippines and Indonesia.
The peso has been trading near P40 in recent weeks, worrying dollar earners like exporters and business process outsourcing (BPO) firms, as well as Filipinos who depend on remittances sent by loved ones working or living abroad.
The appreciation of the peso is expected to continue beyond 2013. In 2014, Goldman Sachs expects the peso to reach P35 to the dollar before it depreciates to P40 in 2015 and P41 in 2016.
Tan said the strong peso is linked to Goldman Sachs' forecasts of a weak dollar and strong economic growth in Asia, including the Philippines. He added that even the Thai Baht and the Indian Rupee are expected to appreciate against the US dollar, alongside the peso.
"In this period of prolonged infrastructure expansion investment, it's actually beneficial to have a stronger currency because you're going through a period of intensive capital (inflow) and a stronger currency helps drive that as well," Tan said.
"As to your comment on the peso appreciation being driven by speculative flows, I think that's quite hard to estimate, actually. I think a large part of it, as I mentioned, is being driven by FDI (Foreign Direct Investment), remittances, and we would view those as fundamental flows rather than speculation," he added.
The Philippine economy grew 6.6% in 2012, placing it among the best performing in the region.
Goldman Sachs estimates that the Philippines will grow between 5.5% and 6% from 2013 to 2016. Goldman Sachs expects Gross Domestic Product (GDP) to hit 5.5% this 2013 and 2014 before it accelerates to 5.6% in 2015 and 5.8% in 2016.
This will be propped by a benign inflation environment that is within the government's 3% to 5% inflation target until 2016. Inflation is expected to post a 4.2% growth this year, 3.8% in 2014, and 3.5% in 2015 and 2016.
The government recently released its GDP growth in 2012 that it pegged at 6.6% on the back of strong household consumption driven by increasing incomes and OFW remittances.
"We have to worry about the peso appreciation because it directly impacts employment," noted Socioeconomic Planning Secretary Arsenio Balisacan during a press conference on the Philippines' full year 2012 economic performance on Thursday, January 31.
Balisacan said the government is trying to manage the risks, as well as improve the economy's absorptive capacity as dollars flow in.
"Rest assured that we're doing our best (so) that the competitiveness of the Philippines won't be adversely affected by inflows," Balisacan said. - Rappler.com
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