PHL economy in 2013: Of growth, upgrades, tapers and Yolanda

At the start of the year, the PHL economy flexed its muscle as it registered strong economic growth numbers prompting the local stock exchange to close at record highs almost every day.  Towards the end of the first quarter, this was punctuated by the first of three investment upgrades from the major credit rating agencies.  Real estate development was feverish even as global luxury brands opened shops including the premier British automaker Rolls-Royce. It looked like a banner year for the PHL economy as it outpaced the rest of its ASEAN neighbors. 

Through this economic frenzy, three major events defined 2013, these were:

One: Investment Grade
 

First was the investment grade rating the Philippines, as sovereign borrower, got from Fitch Ratings on March 27. The credit rating upgrade confirmed the Philippines was no longer “The Sick man of Asia.” 

 

In upgrading the creditworthiness of the Philippines for the first time, the debt-watcher cited a resilient economy and improved fiscal management.

According to Fitch, among the key ratings drivers were the following:

"The Philippine economy has been resilient, expanding 6.6 percent in 2012 amid a weak global economic backdrop. Strong domestic demand drove this outturn. Fitch expects GDP growth of 5.5 percent in 2013. The Philippines has experienced stronger and less volatile growth than its 'BBB' peers over the past five years.

Improvements in fiscal management begun under President Arroyo have made general government debt dynamics more resilient to shocks. Strong economic growth and moderate budget deficits have brought the general government (GG) debt/GDP ratio in line with the 'BBB' median. The sovereign has taken advantage of generally favorable funding conditions to lengthen the average maturity of GG debt to 10.7 years by end-2012 from 6.6 years at end-2008. The foreign currency share of GG debt has fallen to 47% from 53% over the same period."
 

"Everybody was happy when we received the first investment grade rating from Fitch then from S&P, which made us stronger early this year," said Harry Liu, president of Summit Securities Inc.

 

Fitch was only the beginning. This was followed by Standard & Poor's Ratings Services on May 2 and, though somewhat behind, the upgrade from Moody's Investors Service came on October 3. 

 

The credit rating agencies cited improved fiscal position, current account surplus, robust economic  growth, sound  economic policies  as well as government efforts to curb corruption as among the rational for the upgrade, according to a December 6 research note, “2014-The year ahead: Philippines Shining Through,” BDO Unibank.

 

“The upgrades have definitely put the Philippines on investors’ radar screens and this should bode well not just for portfolio flows but also FDIs (foreign direct investments),” Euben Paracuelles, head of Nomura Southeast Asia Economics Research, told GMA News Online in in response to an e-mailed query.

 

For his global perspective, Paracuelles considered development overseas as the biggest market-moving news for the Philippines that also impacted markets all over the world. 

 

“I think for this year this was mainly on the external front, particularly in May when the Fed started to talk about the possibility of Fed tapering,” he said.

Two: Fed Tapering
 

Widely known as the Fed tapering, this happens to be the second market-moving development for the Philippines.

“Tapering” is a term introduced into financial use on May 22, when U.S. Federal Reserve Chairman Ben Bernanke said in his testimony before the U.S. Congress that that Fed may taper - or reduce - the size of its bond-buying program known as quantitative easing (QE). The program, designed to stimulate the U.S. economy, also served the secondary purpose of supporting financial market performance in recent years.
 

According to Reuters, share prices on Wall Street faltered in volatile session as investors worried about the likelihood of a scale back in the $85-billion bond-buying stimulus of US Federal Reserve.

 

At that time, Bernanke said the US central bank “could decide to scale back the pace of bond purchases at one of the "next few meetings" if the economic recovery looked set to maintain forward momentum.”

 

It happened at a time when the Philippine economy was exceeding expectations, growing by 7.6 percent in the first half while the rest of the world was struggling to register better gains. 

 

“Number one story for me is sustaining five straight quarters of at least 7 percent growth, given that most economies were slowing down,” said Emilio Neri Jr., lead economist at Bank of the Philippine Islands. 

 

Just when the Fed innuendoes seemed to have been digested by markets, though with a bitter aftertaste, Central Philippines was struck by a magnitude-7.2 earthquake that was 32 times stronger than that the atomic bomb dropped on Hiroshima in World War II. 

 

The October 15 earthquake destroyed roads and bridges, houses and offices, as well as historical churches in Cebu and Bohol. Businesses and the tourism industry were at a standstill.

Three: Yolanda Sweeps a path of destruction
 

Less than a month later, on November 8, the third market-moving development happened in the form of killer Typhoon Yolanda. Packing 315 kilometer winds and gustiness of up to 378 kph, Yolanda was the strongest to make landfall in recorded history. 

 

The typhoon induced up to 25-foot storm surges that flattened towns and cities in Central Philippines, and killed more than 6,000 people.   

 

"After the earthquake and Typhoon Yolanda hit the Philippines, some economists cut GDP growth forecast for  2013 and early 2014," said April Lee Tan, COL Financial vice president and head of research.

 

Economic managers expect the Philippine output to drop sharply in the fourth quarter due to the damage caused by Typhoon Yolanda. 

 

“It's really a major game changer... and that really presented some uncertainty on our growth path,” said ldemarc C. Bautista, research head at Metropolitan Bank &Trust Co.

 

These are the major news events that had wide-ranging repercussions on the Philippine economy in 2013.

 

Together with the three strongest developments that influenced the economy in general and the markets in particular, here is a list of major economic stories that defined 2013: 

– OMG, GMA News