Peso may climb further despite expected GDP contraction in Q1

THE PESO will likely continue to climb this week even as the economy is expected to have remained in contraction in the first quarter.

The local unit closed at P47.855 per dollar on Friday, strengthening by 12.50 centavos from its P47.98 close on Thursday, based on data from the Bankers Association of the Philippines.

It also appreciated by 24.50 centavos against its P48.10-per-dollar close on April 30.

The peso’s Friday close was its strongest in more than four years or since its P47.83 per dollar finish on Sept. 22, 2016, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

Mr. Ricafort said the peso strengthened on Friday following improved trade data.

The country’s trade deficit stood at $2.41 billion in March, smaller than the $2.71-billion gap in February and the $2.73-billion shortfall a year earlier, the Philippine Statistics Authority (PSA) reported on Friday.

The narrower trade deficit came on the back of improving exports, which rose 31.6% to $6.68 billion following a 1.5% decline in February. Imports also increased by 16.6% to $9.10 billion.

Signs of improvement in the local job market also boosted investor sentiment, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

The results of the latest Labor Force Survey showed there were about 3.441 million unemployed Filipinos in March, declining from the 4.187 million in February, based on preliminary data reported by the PSA on Thursday. With this, the country’s unemployment rate stood at 7.1% in March, the lowest since the 5.3% in January 2020.

Meanwhile, the underemployment rate — or those employed but are still looking for more work or longer working hours — improved to 16.2% from 18.2% in February. This is equivalent to 7.355 million Filipinos, lower than the 7.85 million underemployed workers a month earlier.

For this week, Mr. Asuncion said the local unit may continue to appreciate versus the greenback due to expectations of a weak economic performance in the first quarter due to slow recovery of imports and domestic demand.

A BusinessWorld poll of 18 analysts yielded a median estimate of a 2.6% GDP contraction in the first three months of the year as the lockdown in March and the renewed surge in coronavirus cases continued to weigh on the economy.

If realized, the GDP decline in the January to March period will be the fifth consecutive quarter of contraction, albeit better than the 8.3% drop seen in the fourth quarter of 2020.

Meanwhile, Mr. Ricafort said market sentiment will also be guided by the government’s decision on new lockdown measures and the central bank’s policy meeting on Thursday.

Metro Manila, Cavite, Laguna, Rizal, and Bulacan are under modified enhanced community quarantine until May 14. The Palace is expected to announce this week whether these measures remain or be eased for the rest of the month.

Meanwhile, the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board will meet on Thursday for their third rate setting meeting this year.

A BusinessWorld poll showed 15 out of 17 economists expect the BSP to keep benchmark interest rates at their current record lows as the economy needs fiscal measures more for support at this point and not monetary policy tweaks.

For this week, Mr. Asuncion gave a forecast range of P47.80 to P48.20 per dollar, while Mr. Ricafort expects the local unit to move within the P47.80 to P47.95 band. — L.W.T. Noble