External factors biggest risk to PH

EXTERNAL factors are the biggest risks to the Philippine economy, the interagency Financial Stability Coordination Council (FSCC) warned on Tuesday.

In a press conference on Tuesday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, who is also the FSCC chairman, noted that global disruptions will always test the country's road forward.

"We expect spillovers from the advanced economies to emerging markets economies through cost-push pressures and higher risk premiums. These are not independent shocks, but are interconnected at many levels, creating complex, non-stationary and interlinked cause-and-effect relationships," he explained.

Covid-19-induced supply restrictions, Diokno pointed out, are still visible in various ways. This is exacerbated further by geopolitical events that have a direct impact on commodities pricing.

He said global crude oil blends such as Brent, West Texas Intermediate and Dubai are considerably above their closing prices in 2021, while wheat, corn and nickel prices have all surged by at least 30 percent as of end-May this year.

Interest rates have risen in many economies, the central bank chief stressed, who also said that part of this is due to the goal to exit the accommodative stance maintained during the Covid-19 years.

"Arguably, however, there are also concerns about managing demand side pressures as many jurisdictions attempt to temper growth through a soft landing," he added.

As a result, Diokno said these global pressure points will have an impact on the Philippines' financial stability, noting that the pass-through effect of oil prices is already visible at local gas stations, raising domestic inflation in a way that is not typically addressed by monetary tools.

Rising interest rates in advanced economies, he continued, will invariably be transferred to emerging markets in an interconnected world. Risk premiums will grow in secondary markets, impacting market valuations of financial assets and changing debt prices, both for the public sector and for private firms.

"All of these validate that we are continuously operating in a VUCA world. Our markets are always defined by volatility, uncertainty and complexity (VUCA), creating ambiguity in what lies ahead," the FSCC head emphasized.

Finally, he said that identifying, assessing and anticipating rising systemic risks is critical.

The state of stability, BSP Senior Assistant Governor and FSCC Technical Secretariat head Johnny Noe Ravalo said, must have a local context.

"While there will be external forces that will impinge on our state of stability, we do have to start from the local context," he stressed.

In the Philippines, Ravalo said that economic growth rates have improved, unemployment rates have decreased and individual purchasing power has increased.

However, two obstacles are causing some friction in the current state of local strength stability: oil and rising interest rates.

"Is the Philippine economy in a position to address all of these risks? We at this point, we are fairly confident that the economy is in a very strong position to meet the headwinds ahead," Ravalo, nonetheless, pointed out.

Source: TheManila Times