MANILA • As if falling for six straight years wasn’t enough, the Philippine peso is now facing an additional threat: A midterm election that may compound concerns about its economy.
As the nation gears up for polls due in May, political uncertainties may pose an added source of pressure to those stemming from its long-running deficits. With risk appetite likely to remain fragile due to fears of a global slowdown, traders may drive the peso back below the 13-year low set in October.
“The overarching downside risks will probably emanate from risk-off sentiment refocusing worries on high inflation and twin-deficit risks,” said an economist. “Political risks could also creep back in, and those will add to the headwinds for the peso.”
The peso will drop about 2.5% to 54 per dollar by yearend, making it the third-worst currency in the region after the Indonesian rupiah and Thai baht, according to Bloomberg. It closed at 52.51 last Friday.
The peso has been under mined by local politics more than once in the past. The currency sank almost 4% in 2003 on attempted coup and corruption scandals. Current President Rodrigo Duterte’s approval rating is far higher, but given the unfavourable external backdrop, investors may choose to avoid Philippine assets for now.
The central bank predicts the current-account deficit will widen to 2.3% of GDP in 2019, the most in 18 years. The budget balance was negative 39.1 billion pesos (RM3.08 billion) in November, having been in deficit for seven straight months.
Traders will be watching November trade figures due on Jan 10 to get a better picture of the outlook. The nation will report a deficit of US$1.99 billion (RM8.24 billion), versus the record shortfall of US$4.21 billion in October, according to a Bloomberg survey.
This year’s election will be a referendum on Duterte, after his popularity has been sapped by quickening inflation that eroded consumers’ purchasing power. — Bloomberg