Stocks and the peso fell Thursday after the government reported a weaker-than-expected gross domestic product growth in the second quarter of 2023.
The 30-company Philippine Stock Exchange index lost 80.79 points, or 1.23 percent, to close at 6,449.66, while the broader all-shares index declined 34.78 points to settle at 3,445.38.
“The market fell after a surprisingly disappointing Philippine second-quarter GDP print of 4.3 percent, which was below the consensus forecast of 6 percent,” China Bank Capital managing director Juan Paolo Colet said.
Colet said the lower growth raised investors’ concern that full year expansion would be lower than the government’s target range of 6 percent to 7 percent.
“Traders will now turn their attention to July inflation release for market direction,” Colet said.
The peso also retreated to 56.22 against the US dollar Thursday from 56.20 Wednesday following the release of the GDP report.
Ryota Abe, an economist at Sumitomo Mitsui Banking Corp. said the 4.3-percent expansion was below the market forecast of 6.0 percent.
“As the central bank of the Philippines is still concerned about high inflation, even if concerns about an economic slowdown increase, it would be difficult to start cutting rates immediately. I believe BSP can seriously consider rate cuts in the meetings in the fourth quarter. The latest GDP data will no doubt make BSP more wary than ever of an economic slowdown,” he said.
“The BSP’s concern is expected to shift from inflation to the economy going forward. The policy rate will probably be held steady at 6.25 percent at the next meeting on Aug. 17,” he said.
He said that as the BSP would likely cut interest rates ahead of the US Federal Reserve, the interest rate differential between the US and the Philippines will narrow. “From this perspective, based on the above outlook, the possibility of PHP depreciating against USD cannot be ruled out. Although USD could fall further as market participants start to price in Fed rate cuts, some believe that the Fed’s hawkish stance will last longer than expected,” he said.
Oxford Economics, a London-based think tank, said the growth slowdown in the second quarter came from the domestic sector, which was finally feeling the impact of monetary tightening.
“We think the outlook remains challenging. The effect of rapid monetary tightening will not be contained to one quarter but will likely linger for some time. On top of this, soft external demand will likely exert downward pressures on goods exports in second half of 2023 and into 2024. We will downgrade our already below-consensus growth forecast of 5.4 percent this year given today’s print,” it said.
“We think the outlook remains challenging. Today’s print indicates the lagged impact of monetary tightening on growth is finally kicking in, which we expect will last for some time,” Oxford Economics said.
“Despite the pickup in exports, the external outlook is clouded. We forecast global growth will slow towards the end of the year, which will weigh on the Philippines’ goods exports. The gradual recovery in the IT cycle is unlikely to fully offset the general softness in external demand. Today’s data add weight to our expectation that the Bangko Sentral ng Pilipinas is unlikely to hike the policy rate next Thursday, and raise the risk the central bank may start cutting rates sooner than our Q1 2024 expectation,” it said.
Meanwhile, Asian markets were mixed Thursday ahead of much-anticipated US inflation data, which comes against a backdrop of renewed concerns that the Federal Reserve could announce another interest rate hike before the end of the year.
The feel-good factor that characterized much of July has given way to uncertainty about the US central bank’s plans following a mixed jobs report and warnings from policymakers that more was needed to finally get prices under control.
Ongoing weakness in China’s economy — and lack of concrete action by authorities to address it — are also taking their toll on investor sentiment, helping to drive a retreat in global markets in recent weeks.
All eyes are on the release later Thursday of the US consumer price index for last month, a closely watched gauge of inflation that plays a key role in the Fed’s decision-making on monetary policy.
While rate hikes have dampened steep price rises — from a four-decade high of 9.1 percent in June last year to three percent now — observers warned officials would find it harder to get inflation back down to its two percent target.
After falling for 12 straight months, forecasts are for a slight uptick in the CPI, partly because of rising oil costs. With AFP