So far, I've been busy with other stuff that I didn't have the time to write. This is some of what my group and I have been doing for the past two weeks, tsp related. :)
Written below is the complete write-up of what we have researched for the macroeconomy for the mock trading.
Global Outlook
- Advance Economies and EuroZone growth rate is consistently below world growth rate.
- USA growth rate is above world growth rate for 2000 – 2008, but drastically went down on 2009 due to the crisis and recovered following the world growth rate in the next few years.
- Developing Asia’s growth rate is consistently the highest.
- Comparing GDP growth of per country group to Philippines shows that the Philippines has been performing better in years.
- Growth rate of the per counter group is expected to rise for about 1 to 2 percent for 2013 -2017.
- Barring major geopolitical shocks, the world economy in 2013 should mark the beginning of sustainably faster growth with declining trade imbalances.
- Expansionary monetary policies will continue to drive the cyclical upturn in the United States and in the euro area, despite significant headwinds from fiscal consolidation.
- Economic activity in Latin America will strengthen. With an estimated current account deficit of nearly $80 billion, this area is making a net contribution to world economic growth.
- East Asia will remain the fastest growing segment - and the largest surplus unit - of the world economy. Unfortunately, a good part of that growth will be on the back of its trading partners. East Asia sells $270 billion more than it buys from the rest of the world. Its huge excess savings will continue to be a source of finance to deficit countries.
- Philippines is expected to outperform most other nations in Asia and enjoy another year of strong economic growth. Philippine economy is forecast to expand 6.2 % in 2013 on strong domestic consumption, improved global financial conditions, and recovery in exports.
Philippine Economy
- The Philippine economy was one of the global star performers in 2012 with growth accelerating over 6%, well above the 3.9% in 2011 and above the average over the last 10 years (5%). In 2013, the Philippine economy is expected to grow by around 6% on the back of sound policy developments and strong underlying fundamentals.
- Philippines is also as “the diamond of the region” by an RBS economist in November has been proudly replayed by media and policy-makers alike.
- Gross Domestic Product
- Gross Domestic Product (GDP) grew by 6.8 percent in 4Q2012, paving for the full-year GDP estimate to post a broad-based growth of 6.6 percent.
- Increase was fuelled by robust performance of th e Services sector as well as the substantial improvements of Manufacturing and Construction.
- GDP is expected to grow above 5% in the coming years, mainly coming from buoyant public and private spending.
- Inflation
- Year-on-year headline inflation for the whole year of 2012 averaged 3.2 percent well within the Government's target range of 3-5 percent for the year.
- Inflation is expected to remain within the BSP’s target of 3% - 5% in the next few years.
- Unemployment
- Unemployment rate improved in 2011 at an average of 7% compared to 7.4% in 2010. Growth in job creation outpace growth in labor force. Meanwhile, the unemployment rate is expected to hover around 4%.
- External Balance
- Current account continued to register a surplus at US$1.8 billion, equivalent to 2.9 percent of GDP but 15% lower than the surplus of US$2.1 billion in 2010.
- Surplus in the current account was sustained by net receipts in current transfers, services and income, which offset the widening trade-in-goods deficit.
- Current account is expected to remain in surplus on the back of strong inflows from OFWs and receipts from the growing BPO industry
- Fiscal Balance
- Fiscal deficit in 2012 amounted to P424.8B equivalent to 2.3% of GDP below the 2.6% target.
- Phils. making progress in tackling fiscal challenges – inadequate tax collection and chronic under spending.
- Government has continued to demonstrate prudence in its fiscal management, as characterized by low budget deficits (less than 3% of GDP)
- Interest Rates
- Policy interest rates, overnight repurchase (repo) rate and reverse repo rate, were kept on hold, at 5.5% and 3.5%, respectively, since October 2012.
- Yields on government papers fell to record lows due to investor strong demand on the back of the country’s solid fundamentals
- The market is expecting a 25bps rate hike in 2013. Nevertheless, interest rates are expected to remain at or slightly above current levels.
- Exchange Rates
- Peso emerged as Asia Pacific’s 2nd best performing currency against the dollar in 2012 due to continued influx of foreign funds
- Measures to temper capital inflows include ban on foreign funds in SDA and cap on non-deliverable forwards (NDF)
- The peso is expected to appreciate further on strong inflows from OFWs, the BPO sector, foreign direct investment and portfolio investment flows (hot money).
Growth Drivers
- Summary of Key Drivers
- Conditions are ripe for spending (both from the public and private sectors)
- Inflation in check, interest rates to remain low, liquidity abound
- Sustained consumer spending and increased investment spending from the private sector
- Government spending on infrastructure and socio-economic programs
- Conditions are ripe for spending
- Interest rates expected to remain low as there is a continued downward trend of the 10-yr. T-bond yield
- Liquidity is abound
- Domestic liquidity (M3) grew by 10.6% yoy in Dec. ‘12 to reach P5.2 trillion
- Growth in money supply (M2) driven by expansion in net domestic assets
- Improved NPL ratio resulting in more funds available for lending making the banking sector is sound
- Election Related Spending
- In 2013, expenditure is likely to be propped up by election-related spending for the May mid-term poll. Continued slow progress on flagship public-private partnership scheme of the president will dampen spending growth.
- Consumer Related Spending
- Robust consumer spending on the back of strong inflows from OFWs and receipts from the growing BPO industry
- OFW remittances up 7.2% to new record $ 20.12 B in 2011 amid political turmoil in some parts of MENA and slowdown in global economic growth
- Remittances remained resilient due to sustained foreign demand for skilled Filipino manpower and financial service innovations of banks
- OFW remittances are likely to still expand by 4-5% as the demand for Filipino workers abroad remains vibrant. Be¬sides, OFWs tend to remit more dollars to compensate for a peso appreciation in order to meet the peso bud¬gets of their families in Philippines. Q1 2013, however, will likely exhibit a slowdown from the previous quarter, as the OFWs tend to save up for months.
- With strong OFW remittances and portfolio capital in¬flows, the natural tendency will be for the peso to ap¬preciate particularly in Q1. However, this will be tem¬pered by BSP’s actions—further buildup of international reserves, more macroprudential measures, a further 25 bps cut in policy rates, among others—and by a larger trade deficit, which will emerge from stronger capital goods imports and larger imports of crude oil as a result of faster economic growth.
- IT-BPO services serve as catalysts for growth, the industry played a major role in fueling recent economic development in the Philippines
- IT-BPO revenue reached $11B in 2011 24% higher than 2010.
- BPAP 5-yr. plan to grow at an average of 20% a year – above the projected global annual growth rate of 10-15%
- Credit Rating Upgrade
- Upgrades in indicators of competitiveness and sovereign ratings reflect an improved investment environment.
- S&P raised its outlook on the Phils.’ credit rating to “positive” from “stable”.
- Current administration possesses a level of legitimacy, support and stability that reduces political uncertainty and allows for improved legislative efficiency. This environment allowed the government to focus its efforts on improving its revenues, building infrastructure and reducing poverty.
- Credit rating may be raised from “BB+” to investment-grade by end-2014. The case for investment grade is supported by a number of factors, including a resilient economy, a current account surplus, stable fiscal policy, and the narrowing of the budget deficit.
- Philippine Stocks to outperform its peers
- Fiscal deficit is expected to narrow gradually over the next few years.
- Fiscal consolidation would continue especially with the implementation of the "sin tax" in January.
- Policy rates will remain unchanged at 3.50% given robust growth outlook and a manageable inflation. Possible policy rate hike by 25 bps in Q4.
- Further SDA rate cuts can’t be ruled out, which would give central bank more freedom to manage FX volatility.
- Inflation may accelerate, particularly in 4Q2013, due to higher food and energy inflation, consumer spending, and base effects but will remain manageable and unlikely to breach the inflation target.
Preferred Sectors for Stock Pics
- Consumer Staples
- Utilities
- Financial
- Real Estate
- Tourism
Summary/Other notes
- With the year ending at a high note, and prospects both at home and abroad looking a bit better, we think that 2013 would show an acceleration in growth by as much as 8%, assuming the peso does not appreciate to below P40/$.
- As the most recent job figures tend to be ambivalent, and the election preparations heat up starting December, we expect a further acceleration of growth in H1 of 2013.
- Inflation is likely to continue at 3% or lower for most 2013, with food supply remaining abundant, while crude oil prices held down by rising U.S. oil and gas output from shale, and from Canadian tar sands. Due to base year effects, Q1 may see inflation average at 3%, but the trend would be downward in subsequent quarters. We expect full-year inflation to average 2.8%.
- The fiscal sector will continue to provide higher spend¬ing for infrastructures and other capital outlays, albeit at a slower pace, between 15% and 20% for the year. However, this growth will still be above 20% in H1 considering that the Department of Public Works and Highways (DPWH) would have unspent funds of some P40 B that will be used up in H1 2013. Besides, the fiscal sector’s consolidation will continue as a result of the passage of the Sin Tax reform law and more robust tax collections of the BIR arising from faster growth and better tax ad-ministration.
- Monetary policy will be neutral to easy, as the low inflation allows the BSP to further cut the interest differential between peso instruments and foreign debt papers. A smaller differential would reduce foreign portfolio inflows, and lessen losses of the BSP (which is huge for every peso of appreciation, due to its large amount of foreign exchange reserves).
- Exports are likely to gain by 10%, not only because the U.S. and China are more recently showing signs of gains, but also because of the inward flow of manufacturing facilities into the country by Japanese and Korean firms. Besides, electronics exports seem to have bottomed out, and a resurgence would be more apparent in Q1 2013.
- OFW remittances are likely to still expand by 4-5% as the demand for Filipino workers abroad remains vibrant. Besides, OFWs tend to remit more dollars to compensate for a peso appreciation in order to meet the peso budgets of their families in Philippines. Q1 2013, however, will likely exhibit a slowdown from the previous quarter, as the OFWs tend to save up for months.
- With strong OFW remittances and portfolio capital in¬flows, the natural tendency will be for the peso to appreciate particularly in Q1. However, this will be tempered by BSP’s actions further buildup of international reserves, more macroprudential measures, a further 25 bps cut in policy rates, among others and by a larger trade deficit, which will emerge from stronger capital goods imports and larger imports of crude oil as a result of faster economic growth.
References
- http://www.cnbc.com/id/100347707/Why_2013_Will_See_Faster_Stronger_Global_Growth
- http://philippinebritish.com/outlook/philippines-economy-2013-outlook
- http://www.adb.org/countries/philippines/economy
- http://www.moodys.com/research/Moodys-assigns-positive-outlook-on-Philippines-sovereign-credit-rating--PR_247006
- www.bloomberg.com
- http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/index.aspx
- http://www.bsp.gov.ph/publications/media.asp?id=3070
