(Bloomberg) -- Southeast Asia's worst-performing currency of 2016 is in for another tough year with President Rodrigo Duterte's spending plans seen boosting imports just as rising U.S. interest rates spur capital outflows.
The peso is forecast to be collateral damage as an economy growing faster than 7 percent and the government's infrastructure program drive demand for inward shipments. This year will be the first in about a decade when the amount of money Filipinos send home from overseas will be lower than the trade deficit, estimates ING Groep NV.
“It's a challenging situation for the peso for the next couple of years,” said Joey Cuyegkeng, an economist at the Dutch lender in Manila. “A very strong domestic sector requires imports of both consumer goods and durable equipment as the economy expands and moves into investment-driven growth.”
The peso, which dropped 5.2 percent against the dollar in 2016, will fall a further 4.4 percent to 52 by the end of this year, predicted Cuyegkeng. The uncertain international environment, with Donald Trump poised to take office as U.S. president, and nervousness over President Duterte's pivot toward China is likely to push investors to demand a peso premium, he said.
The peso strengthened 0.04 percent to 49.76 a dollar as of 11:44 a.m. in Manila, while the Philippine Stock Exchange Index rose 1.8 percent.
Duterte's fiery outbursts and unpredictability, together with high valuations, also damped the allure of Philippine shares in the second half of 2016. The benchmark index dropped 16 percent from a peak in mid-July to finish the year down 1.6 percent. Opinion is divided on the prospects for this year, with Deutsche Asset Management and Nomura Holdings Inc. predicting a rebound, while Morgan Stanley and Credit Suisse Group AG see more losses.
Political Risk
The government is forecasting a 10 percent jump in imports in 2017, compared with a 4 percent rise in remittances. Money sent home by Filipinos living abroad accounts for around a tenth of the nation's economy.
Alan Cayetano, the Manila-based head of foreign-exchange trading at Bank of the Philippine Islands, is penciling in a rate of 51.5 to 52 pesos per dollar by the end of 2017. That's more bearish than the median estimate of 50.8 of 21 analysts surveyed by Bloomberg.
The peso will weaken at a slower pace this year than in 2016 as major developments like higher U.S. rates and more local spending are mostly priced-in, said Cayetano.
“But that's barring any unforeseen events,” he said. “What can affect the peso locally will be politics.”
--With assistance from Ian Sayson To contact the reporter on this story: Ditas Lopez in Manila at dlopez55@bloomberg.net. To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Andrew Janes, Tan Hwee Ann
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