RECENT NEWS
Philippine news: Monetary policy
BSP chief Medalla signals long pause on rates—instead of rate cuts, BSP may reduce banks’ RRR
Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla has indicated a pause on interest rates, as inflation eases and the economy remains strong, reducing the need for rate cuts. Medalla emphasized the importance of preventing excessive depreciation of the peso, which could lead to inflationary expectations. The decision to halt the fastest monetary tightening in two decades was influenced by cooling inflation and economic uncertainties. Medalla believes that a rate cut may be considered once the US Federal Reserve eases its monetary policy, but he doesn't expect that to happen this year. The central bank is also considering reducing banks' reserve requirement ratio (RRR) as an alternative to loosening monetary policy. This move would enhance cost-effectiveness for banks and provide liquidity to boost the economy. Market analysts expect the Monetary Board to maintain interest rates unchanged, considering the recent slowdown in inflation. The interest rate differential between the Philippines and the US, as well as the country's current account deficit, may impact the movement of the peso against the dollar.
Source:
BSP chief Medalla signals long pause on rates (19 May 2023), BusinessWorld Online;
Instead of rate cuts, BSP may reduce banks’ RRR (17 May 2023), BusinessWorld Online
BSP chief Medalla signals long pause on rates—instead of rate cuts, BSP may reduce banks’ RRR
Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla has indicated a pause on interest rates, as inflation eases and the economy remains strong, reducing the need for rate cuts. Medalla emphasized the importance of preventing excessive depreciation of the peso, which could lead to inflationary expectations. The decision to halt the fastest monetary tightening in two decades was influenced by cooling inflation and economic uncertainties. Medalla believes that a rate cut may be considered once the US Federal Reserve eases its monetary policy, but he doesn't expect that to happen this year. The central bank is also considering reducing banks' reserve requirement ratio (RRR) as an alternative to loosening monetary policy. This move would enhance cost-effectiveness for banks and provide liquidity to boost the economy. Market analysts expect the Monetary Board to maintain interest rates unchanged, considering the recent slowdown in inflation. The interest rate differential between the Philippines and the US, as well as the country's current account deficit, may impact the movement of the peso against the dollar.
Source:
BSP chief Medalla signals long pause on rates (19 May 2023), BusinessWorld Online;
Instead of rate cuts, BSP may reduce banks’ RRR (17 May 2023), BusinessWorld Online
Philippine news: Growth
Philippines’ GDP growth at 6.4% in Q1 2023—the country may find it difficult to return to pre-pandemic growth momentum
The Philippines' gross domestic product (GDP) grew by 6.4% in the first quarter of 2023, which is the slowest pace in seven quarters. The main contributors to this growth were wholesale/retail trade, financial and insurance activities, and "other services." All three major sectors, including industry, services, and agriculture, posted growth in the first quarter. However, there was a slowdown in GDP growth due to a contraction in mining and quarrying as well as public administration and defense. On a quarter-on-quarter basis, growth slowed to 1.1%. Analysts had expected a growth rate of 6.1%. Despite the challenges, the Philippine economy's performance aligns with the government's target for the year. BSP Governor Felipe Medalla acknowledges the difficulty of returning to pre-pandemic growth levels and believes it will take time for a full recovery. Inflation has been a persistent challenge, with above-target levels expected to last for several months.
Source:
Philippines’ GDP growth above-target at 6.4% in Q1 2023 (11 May 2023), Philippine Daily Inquirer;
PHL may find it difficult to return to pre-pandemic growth momentum (11 May 2023), BusinessWorld Online
Philippines’ GDP growth at 6.4% in Q1 2023—the country may find it difficult to return to pre-pandemic growth momentum
The Philippines' gross domestic product (GDP) grew by 6.4% in the first quarter of 2023, which is the slowest pace in seven quarters. The main contributors to this growth were wholesale/retail trade, financial and insurance activities, and "other services." All three major sectors, including industry, services, and agriculture, posted growth in the first quarter. However, there was a slowdown in GDP growth due to a contraction in mining and quarrying as well as public administration and defense. On a quarter-on-quarter basis, growth slowed to 1.1%. Analysts had expected a growth rate of 6.1%. Despite the challenges, the Philippine economy's performance aligns with the government's target for the year. BSP Governor Felipe Medalla acknowledges the difficulty of returning to pre-pandemic growth levels and believes it will take time for a full recovery. Inflation has been a persistent challenge, with above-target levels expected to last for several months.
Source:
Philippines’ GDP growth above-target at 6.4% in Q1 2023 (11 May 2023), Philippine Daily Inquirer;
PHL may find it difficult to return to pre-pandemic growth momentum (11 May 2023), BusinessWorld Online
Japan’s economic recovery
Japan exits recession despite export slump
Japan has exited its period of recession as household spending and tourism have already recovered from the pandemic. As such, the GDP of Japan for the first quarter grew at an annualized rate of 1.6%, exceeding economists’ forecast of 0.7% growth rate. However, economists have also cautioned that while Japan’s recovery remains modest, there are still risks to the global economy as there is a decline in the exports sector. As such, exports and services fell 4.2% due to a slump in the global semiconductor market. Thus, these figures are still not enough to say that global economic conditions are now vibrant.
Source: Japan exits recession despite export slump
(19 May 2023), The Financial Times
Japan exits recession despite export slump
Japan has exited its period of recession as household spending and tourism have already recovered from the pandemic. As such, the GDP of Japan for the first quarter grew at an annualized rate of 1.6%, exceeding economists’ forecast of 0.7% growth rate. However, economists have also cautioned that while Japan’s recovery remains modest, there are still risks to the global economy as there is a decline in the exports sector. As such, exports and services fell 4.2% due to a slump in the global semiconductor market. Thus, these figures are still not enough to say that global economic conditions are now vibrant.
Source: Japan exits recession despite export slump
(19 May 2023), The Financial Times
China’s local debt crisis
China’s local-debt crisis is about to get nasty
The Chinese province of Guizhou is facing a severe debt crisis, sparking a national debate about the moral implications of a potential rescue. Guizhou's debts, estimated to be around $380 billion or 130% of the province's GDP, are part of the larger burden of local officials across China, which Goldman Sachs estimates to be $23 trillion. The pressure on Guizhou's officials is immense as interest payments on the debts exceed the province's GDP growth rate. Some cities within Guizhou are already using most of their funds to repay debt, with annual interest payments in Guiyang amounting to 56% of yearly revenues. Efforts for an official bailout are being initiated, with state-owned asset manager Cinda sending a team of experts to assess the situation in Guizhou. Centrally controlled firms could inject liquidity into troubled local-government-financing vehicles (LGFVs) and potentially exchange debt for equity. Policy banks may also play a larger role in resolving the crisis. While some measures are buying time, more substantial action may be necessary in the near future. Overall, the situation in Guizhou presents a challenging scenario, and the central government is under pressure to find a solution to avoid the potential repercussions of a collapse in the province.
Source: China’s local-debt crisis is about to get nasty
(4 May 2023), The Economist
China’s local-debt crisis is about to get nasty
The Chinese province of Guizhou is facing a severe debt crisis, sparking a national debate about the moral implications of a potential rescue. Guizhou's debts, estimated to be around $380 billion or 130% of the province's GDP, are part of the larger burden of local officials across China, which Goldman Sachs estimates to be $23 trillion. The pressure on Guizhou's officials is immense as interest payments on the debts exceed the province's GDP growth rate. Some cities within Guizhou are already using most of their funds to repay debt, with annual interest payments in Guiyang amounting to 56% of yearly revenues. Efforts for an official bailout are being initiated, with state-owned asset manager Cinda sending a team of experts to assess the situation in Guizhou. Centrally controlled firms could inject liquidity into troubled local-government-financing vehicles (LGFVs) and potentially exchange debt for equity. Policy banks may also play a larger role in resolving the crisis. While some measures are buying time, more substantial action may be necessary in the near future. Overall, the situation in Guizhou presents a challenging scenario, and the central government is under pressure to find a solution to avoid the potential repercussions of a collapse in the province.
Source: China’s local-debt crisis is about to get nasty
(4 May 2023), The Economist
China Recovery
China’s Recovery Loses Steam, Signaling Trouble for Global Economy
Key economic indicators of the world’s second largest economy showed that retail sales, factory production, and fixed-asset investment, including within the housing sector, have fallen short of economists’ expectations. In terms of labor force indicators, the unemployment rate for individuals aged 16 to 24 has increased to 20.4%, a dramatic increase from 16.7% at the end of the previous year. China risks “a downward spiral” that can result in less activity, increasing unemployment, and deflation, according to Tin Lu, chief China economist at Nomura. Although current economic weaknesses open the possibility for further policy easing, the central bank may have to postpone any plans to do so, because of concerns on inflating asset bubbles. The initial onset of consumer spending that drove the growth of China at the beginning of the year, after the sudden lifting of Covid restrictions, seems to be fading—with retail sales with a year-on-year increase of 18.4% in April, a 0.5% percentage point increase from March, below economists’ expectations.
Source: China’s Recovery Loses Steam, Signaling Trouble for Global Economy
(16 May 2023), The Wall Street Journal
China’s Recovery Loses Steam, Signaling Trouble for Global Economy
Key economic indicators of the world’s second largest economy showed that retail sales, factory production, and fixed-asset investment, including within the housing sector, have fallen short of economists’ expectations. In terms of labor force indicators, the unemployment rate for individuals aged 16 to 24 has increased to 20.4%, a dramatic increase from 16.7% at the end of the previous year. China risks “a downward spiral” that can result in less activity, increasing unemployment, and deflation, according to Tin Lu, chief China economist at Nomura. Although current economic weaknesses open the possibility for further policy easing, the central bank may have to postpone any plans to do so, because of concerns on inflating asset bubbles. The initial onset of consumer spending that drove the growth of China at the beginning of the year, after the sudden lifting of Covid restrictions, seems to be fading—with retail sales with a year-on-year increase of 18.4% in April, a 0.5% percentage point increase from March, below economists’ expectations.
Source: China’s Recovery Loses Steam, Signaling Trouble for Global Economy
(16 May 2023), The Wall Street Journal
Argentina devaluation
Argentina plans emergency economic measures to avoid big devaluation
Argentina is set to announce new emergency measures, including a significant interest rate hike to 97%, in an attempt to combat its worst economic crisis in 20 years. The government aims to prevent a major devaluation of the peso before the upcoming elections, as the country faces dwindling foreign exchange reserves due to a surge in dollarization. Inflation has soared to 109% annually, prompting the economy ministry to announce interventions by the Central Bank to stabilize the currency. In addition, Argentina has already activated a currency swap with China to pay for imports in renminbi. The latest measures reflect the government's continued reliance on heavy state intervention, despite previous failures to curb inflation and stimulate economic growth. The package includes the importation of food at zero tariffs to combat inflation and reduced interest rates for a state-run credit scheme to support local industry. However, these policies pose risks, as rising interest rates strain the servicing of domestic debt, and depleting reserves raise concerns of another default.
Source: Argentina plans emergency economic measures to avoid big devaluation
(18 May 2023), The Financial Times
Argentina plans emergency economic measures to avoid big devaluation
Argentina is set to announce new emergency measures, including a significant interest rate hike to 97%, in an attempt to combat its worst economic crisis in 20 years. The government aims to prevent a major devaluation of the peso before the upcoming elections, as the country faces dwindling foreign exchange reserves due to a surge in dollarization. Inflation has soared to 109% annually, prompting the economy ministry to announce interventions by the Central Bank to stabilize the currency. In addition, Argentina has already activated a currency swap with China to pay for imports in renminbi. The latest measures reflect the government's continued reliance on heavy state intervention, despite previous failures to curb inflation and stimulate economic growth. The package includes the importation of food at zero tariffs to combat inflation and reduced interest rates for a state-run credit scheme to support local industry. However, these policies pose risks, as rising interest rates strain the servicing of domestic debt, and depleting reserves raise concerns of another default.
Source: Argentina plans emergency economic measures to avoid big devaluation
(18 May 2023), The Financial Times
Chinese car manufacturing
Why Chinese carmakers are eyeing Thailand
Chinese carmakers are turning to Thailand as a crucial location for their international expansion plans. Thailand, with its established presence in the automotive supply chains, is now the tenth-largest car producer globally, surpassing countries like France and Britain. Chinese companies, including BYD, Changan, and Hozon, have announced investments in Thai factories, capitalizing on the country's position as an American ally and its membership in the Regional Comprehensive Economic Partnership (where China is a member). Thailand offers a neutral ground for Chinese carmakers to expand globally, particularly as they face domestic competition and a maturing home market. With Southeast Asia experiencing significant economic growth and car sales rising in the region, Chinese carmakers aim to target both Southeast Asian and Western markets, including Germany and the United States. The investments made by Chinese car companies in Thailand further strengthen China's dominant position in Asian supply chains, and Thailand has received substantial foreign direct investment from Chinese companies, surpassing that from the United States and Japan. The allure of closer ties with the world's second-largest economy is proving irresistible even to American allies like Thailand.
Source: Why Chinese carmakers are eyeing Thailand
(11 May 2023), The Economist
Why Chinese carmakers are eyeing Thailand
Chinese carmakers are turning to Thailand as a crucial location for their international expansion plans. Thailand, with its established presence in the automotive supply chains, is now the tenth-largest car producer globally, surpassing countries like France and Britain. Chinese companies, including BYD, Changan, and Hozon, have announced investments in Thai factories, capitalizing on the country's position as an American ally and its membership in the Regional Comprehensive Economic Partnership (where China is a member). Thailand offers a neutral ground for Chinese carmakers to expand globally, particularly as they face domestic competition and a maturing home market. With Southeast Asia experiencing significant economic growth and car sales rising in the region, Chinese carmakers aim to target both Southeast Asian and Western markets, including Germany and the United States. The investments made by Chinese car companies in Thailand further strengthen China's dominant position in Asian supply chains, and Thailand has received substantial foreign direct investment from Chinese companies, surpassing that from the United States and Japan. The allure of closer ties with the world's second-largest economy is proving irresistible even to American allies like Thailand.
Source: Why Chinese carmakers are eyeing Thailand
(11 May 2023), The Economist
Corporate debts
Businesses are in for a mighty debt hangover
The West is facing concerns about its corporate debt, which has grown significantly in recent years due to low interest rates. However, the risk of a corporate debt crisis remains low for now, as companies have seen robust profits and have opted for fixed-rate debts. The structure of corporate debt, with three-quarters of it being on fixed rates, provides some stability. Yet, slowing GDP growth and rising interest rates pose challenges. Speculative-grade debt, particularly floating-rate debt, is more vulnerable, and bankruptcies of debt-heavy private equity-backed businesses are on the rise. Large listed firms, which carry substantial employment and investment weight, will also be affected by rising interest rates. They will need to start paying down debts, which could lead to reduced dividends and share buy-backs, impacting investor returns. Additionally, companies may have to scale back investment plans, potentially hindering progress in areas like decarbonization and technology advancements. Overall, the effects of corporate debt will extend beyond just investors and could impact the broader economy.
Source: Businesses are in for a mighty debt hangover
(16 May 2023), The Economist
Businesses are in for a mighty debt hangover
The West is facing concerns about its corporate debt, which has grown significantly in recent years due to low interest rates. However, the risk of a corporate debt crisis remains low for now, as companies have seen robust profits and have opted for fixed-rate debts. The structure of corporate debt, with three-quarters of it being on fixed rates, provides some stability. Yet, slowing GDP growth and rising interest rates pose challenges. Speculative-grade debt, particularly floating-rate debt, is more vulnerable, and bankruptcies of debt-heavy private equity-backed businesses are on the rise. Large listed firms, which carry substantial employment and investment weight, will also be affected by rising interest rates. They will need to start paying down debts, which could lead to reduced dividends and share buy-backs, impacting investor returns. Additionally, companies may have to scale back investment plans, potentially hindering progress in areas like decarbonization and technology advancements. Overall, the effects of corporate debt will extend beyond just investors and could impact the broader economy.
Source: Businesses are in for a mighty debt hangover
(16 May 2023), The Economist
U.S. Wage Growth
Wages Grow Steadily, Defying Fed’s Hopes as it Fights Inflation
In April 2023, average hourly earnings in the U.S. were higher by 4.4% from last year and 0.5% in March, and analysts’ expectation of 4.2%. This may pose a problem for the Federal Reserve as they try to factor in wage growth whether to increase or maintain policy rates in the coming weeks. The sustained strength in wage growth may prompt the Fed to keep rates high to continue slowing the economy and tackle inflation, which remains above the central bank's 2 percent goal.
Source: Wages Grow Steadily, Defying Fed's Hopes as it Fights Inflation
(5 May 2023), The New York Times
Wages Grow Steadily, Defying Fed’s Hopes as it Fights Inflation
In April 2023, average hourly earnings in the U.S. were higher by 4.4% from last year and 0.5% in March, and analysts’ expectation of 4.2%. This may pose a problem for the Federal Reserve as they try to factor in wage growth whether to increase or maintain policy rates in the coming weeks. The sustained strength in wage growth may prompt the Fed to keep rates high to continue slowing the economy and tackle inflation, which remains above the central bank's 2 percent goal.
Source: Wages Grow Steadily, Defying Fed's Hopes as it Fights Inflation
(5 May 2023), The New York Times
U.S. Inflation
Inflation Slowed in April, Marking 10th Month of Moderation
U.S. Inflation has slowed for the tenth consecutive month in April as CPI rose 4.9%, slower than expectations. This was brought about by lower prices for airline tickets, new cars, and groceries, offsetting the rise in gas and rent prices. . Economists pointed out that the recent decline in inflation was largely a result of supply chain improvements, and returning to a normal inflation rate could be a lengthy and challenging process. The Federal Reserve is still reviewing whether to raise interest rates in the following weeks given that core inflation is still relatively high, growing at 5.5%. There are also several factors that they are considering in the future such as strong high wage growth and supply chains disruption.
Source: Inflation Slowed in April, Marking 10th Month of Moderation
(16 May 2023), The Economist
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla
Inflation Slowed in April, Marking 10th Month of Moderation
U.S. Inflation has slowed for the tenth consecutive month in April as CPI rose 4.9%, slower than expectations. This was brought about by lower prices for airline tickets, new cars, and groceries, offsetting the rise in gas and rent prices. . Economists pointed out that the recent decline in inflation was largely a result of supply chain improvements, and returning to a normal inflation rate could be a lengthy and challenging process. The Federal Reserve is still reviewing whether to raise interest rates in the following weeks given that core inflation is still relatively high, growing at 5.5%. There are also several factors that they are considering in the future such as strong high wage growth and supply chains disruption.
Source: Inflation Slowed in April, Marking 10th Month of Moderation
(16 May 2023), The Economist
Contributors:
Natasha Amber Cabiltes
Edgar Desher Empeño
Jose Lorenzo Mercado
Brendan Emmanuel Miranda
Jacobe Joaquin Sevilla