Emerging markets have recently been facing a currency crisis as a result of the tapering program from the Fed in United States and the slowest growth of Chinese economy in decades. With Filipino Peso declining 8,9% in the past 12 months against the US Dollar , questions emerge: Will this affect the competitiveness of the Filipino economy? Can inflation become a serious concern for consumers and businesses alike? Peso Depreciation: Opportunities and Challenges arise as the currency fluctuates, influencing trade, foreign investments, and overall economic stability. While a weaker peso may boost exports and remittances, it could also drive up import costs, fueling inflation. Is this good or bad news for foreign investors looking at the Philippines? Understanding the broader implications of peso depreciation is key to navigating its effects on growth and financial stability.
Peso Depreciation: Opportunities and Challenges
The Philippines is an economy that heavily relies on domestic consumption and the remittances of its overseas workers, which account for an astonishing 10% of the country’s GDP. This strong consumer-driven market, coupled with a historically lower export ratio—less than 30% of GDP in 2012—presents both opportunities and challenges amid the depreciation of the Philippine peso.
On the opportunity side, a weaker peso makes Filipino exports more competitive in the global market, allowing local businesses to attract more international buyers. This could provide a much-needed boost for exporters in industries such as manufacturing, agriculture, and services. Similarly, key sectors like business process outsourcing (BPO) and foreign remittances—two of the largest sources of foreign investment in the country—stand to benefit from the peso’s depreciation. As the peso weakens, the value of remittances from overseas Filipino workers (OFWs) increases in local currency terms, thereby enhancing the purchasing power of millions of Filipino families and stimulating consumer spending.
However, peso depreciation also presents challenges, particularly in terms of inflationary pressures and the rising cost of imported goods. Essential commodities, raw materials, and energy costs may increase, affecting both businesses and consumers. The government and businesses must navigate these complexities carefully to maximize the opportunities while mitigating the economic risks associated with a weaker currency.
Ultimately, understanding the full spectrum of Peso Depreciation: Opportunities and Challenges is crucial for businesses, policymakers, and consumers alike, as the country adapts to the shifting dynamics of the global economy.
This will bring a competitive advantage to the Philippines over India, its biggest bpo competitor which rupee has been on the rise. The Philippines is approximately y 10 to 20 % more expensive than India and despite the better level of English and the quality of its labor force, there is always a risk that these operations might relocate to a more desirable and cheaper location. BPO Sector is obviously extremely happy with the recent peso depreciation.
On the other side, Bangko Sentral of the Philippines is closely measuring the inflation that rose in January to 4.2%, the highest value since November 2013. Food, electricity, gas and fuel are some of the categories with more volatile prices that could threat the government target for this economic indicator in 2014 – 4,5%.
Economic Growth, Foreign Investment, the high amount of foreign owned reserves and the stability of world commodity prices are cooling down this threat for the next quarters.
Despite this currency crisis in emerging markets, Asian economies are much stronger and robust nowadays and a new Asian Financial crisis as the one started in Thailand in1997 it is highly unlikely. But all will depend on the political stability of countries such as Thailand, Indonesia and India (both with elections this year). With high credit driven societies, central banks of this countries must not exclude the option of cooling down its economic growth for a more stable economy.
Triple I provides you business insights and management consulting services that will improve your business strategy in the Philippines. If you are looking for a reliable business partner that understands the Philippines, do not hesitate to contact us.
