In recent months a trickle of news regarding a Chinese economic slowdown, continued weakness in Europe, and stalled growth in many emerging markets has raised fears of another global recession. Particular attention has been given to Southeast Asian nations, whose economies are closely tied to export markets in China and the West.
The current account data for many of the region’s leading countries such as Thailand and Indonesia has weakened considerably. Anticipation that the Federal Reserve will end its $85 billion per month bond buying program in the near term has added another reason for concern. A tapering of the Fed’s quantitative easing could reduce demand in the United States and raise the value of the dollar.
This regional pessimism spread to the Philippines as well, causing a 5.5% slide in the Philippine Peso for the first half of 2013 (the largest in Southeast Asia). Yet, recent economic data has begun to paint a more positive picture for the Philippines and should warn against treating the region as one entity. To start, on July 10, the International Monetary Fund raised its 2013 growth forecast for the Philippines from 6% to 7%. Official data also shows a 56% widening in the Philippine current account surplus to $3.4 billion in the first quarter of 2013. The impetus for this turnaround can be attributed to multiple factors, but two specific items seem most important.
First are comments made by Fed Chairman Ben Bernanke last week, where he asserted that the U.S. would retain a “highly accommodative monetary policy” until significant economic improvement was attained. This eased fears about a rising dollar and reduced American import demand. The second factor was a sharp uptick in remittances. The Philippine Central Bank is forecasting a 5% rise in remittances from Filipinos living abroad for 2013, making a total transfer of $22.5 billion. This increase is odd given limited growth in the global economy. However, it can be explained via a closer examination of Filipino migration patterns and general remittance trends.
Remittances tend to be counter-cyclical. In other words, migrants will send more money home when the economy in their country of origin is worse. When times are better they keep more money for themselves. Thus, general concern about a Southeast Asian slowdown may have sparked an increase in remittances. Expatriate Filipinos have also been particularly fortunate in the countries they have chosen to migrate to. With 10 million Filipinos living abroad, the United States has the largest population by far with over 3 million. Canada, Australia, and Middle East countries such as Saudi Arabia, the UAE, and Qatar come next. The first European country to make the top 10 is the UK, which ranks ninth in terms of total Filipino migrants. Thus, unlike so many of Europe’s other heavily concentrated immigrant populations, Filipinos have managed to mostly avoid the dire effects of the Eurozone crisis. Instead,they have fortuitously concentrated in places with more robust growth.
All of this has caused analysts to rethink their outlook on the Philippines. Many forecasters, such as Citigroup, now predict that the Philippine peso will be the region’s biggest winner for the second half of 2013. Thus, at least for the short-term (6 to 12 months) the Philippines appear strongly positioned. The currency is self-correcting, balance of payments looks strong, and growth is picking up the pace.
