Peso may weaken further versus dollar this year as imports surge

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THE PESO may continue to decline this year as imports are likely to surge.

By Karl Angelo N. Vidal, Reporter

THE PESO is seen to weaken further against the dollar this year as the surge of capital goods to support the infrastructure push of the government is expected to widen the trade deficit.

In a text message, UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion said the local unit could end 2019 at the P54.50-per-dollar level, as the country’s external trade gap continues to widen.

“I expect imports to robustly grow and exports continue to slowly recover,” Mr. Asuncion said.




According to latest data, the country’s trade deficit — or the gap between its imports and exports — hit a record high of $4.212 billion in October, wider than the $2.585 billion booked in the same period last year.

In that month, the country’s imports climbed 21.4% year on year, outpacing a 0.3% growth in exports.

Mr. Asuncion added that the country’s import bill will continue to grow “due to continued domestic expansion” through the Build Build Build infrastructure program of the Duterte administration.

The government is embarking on an P8-trillion infrastructure spending program until 2022 in an effort to boost economic growth to 7-8% until then.

Despite recording record highs recently, Rizal Commercial Banking Corp. economist Michael L. Ricafort said the country’s trade deficit can narrow as global oil prices dropped, affecting the strength of the local unit.

“There is some possibility that the peso could partly recover in 2019…after global crude oil prices sharply declined by about 40% from the four-year highs posted on Oct. 4, 2018 and lingered among the lowest levels in 15-16 months,” Mr. Ricafort said in a separate text message.

“This could reduce the country’s import bill and help narrow the trade deficit from record levels.”

Meanwhile, Mr. Asuncion added that the peso could strengthen towards the latter half of the year “like the way it has these past two years” as remittance flows will drive the year-end strengthening.

The peso ended 2018 at P52.58 versus the dollar, declining sharply from its 2017 close of P49.93 against the dollar. However, the currency’s yearend finish was still better than the P54.325-per-dollar finish recorded last Oct. 4, which was the peso’s weakest in nearly 13 years.

The peso has since recovered from being the worst-performing currency in the region and is now the third-worst next to the Indian rupee and the Indonesian ringgit.

On Monday, most Asian currencies were set to end a bumpy year on a positive note, with the Indonesian rupiah leading gains as investors took heart from signs of progress in Sino-US trade talks.