PHP likely to remain weak in August

A group of monthly indicators in Philippine economy show improved growth rates since February. January growth numbers looked soft, in part because of the large number of holidays in January. For example, government spending - which was widely blamed for the disappointing 1Q GDP print - declined 5% yoy in January but grew 10% from February through May. 

While total loan growth slowed to 15.3% as of May, from 18.9% at the end of 2014, consumer credit continued to accelerate. Remittances grew only 0.5% yoy in January but 6.6% from February to May. Consumer and mortgage loans grew 27% and 26% yoy, respectively, through May.

Total imports were down 7% in the first five months of 2015, but that decline is due to the 40% drop in oil imports on account of lower fuel prices. Ex-oil, imports are up 2% ytd. Capital goods and consumer goods imports are up 12% and 9% ytd, respectively. Tourist arrivals grew 6% in 1Q and 12% in April-May. 

"Based on the economic condition in Philippine, PHP is expected to remain weak in August due to a stronger USD trend and a slowdown in foreign investment flows into the equity market. The country is likely to post 6.1% growth rate in fiscal year 2015", estimates Bank of America.

The underlying reasons are disappointing corporate results, fears of contagion from the uncertainties related to China's stock market and global factors. While external balances and remittances remain supportive of the PHP, some element of profit taking is likely to prevail over the coming weeks that will keep the PHP pressured, adds Bank of America.