• In the Philippines, export growth fell back into negative territory, declining by -2.2% yoy in October from 2.9% in September  
• Philippines’ headline inflation rate rose to a four month high of 3.3% yoy in November from 2.3% in October
• In Thailand, the headline inflation rate declined for the ninth consecutive months by 0.4% yoy in November from -0.5% in October

World Bank downgraded Philippines GDP forecast to -8.1% in 2020

Philippines’ export growth fell back into negative territory, declining by -2.2% yoy in October from 2.9% in September, due to lower shipments of agricultural products, which declined by -21.7% yoy. Imports growth plunged sharply to 19.5% yoy in October (-15.3% in September), declining at double digit for 9 straight months. This was reflected in sharp decline in imports of capital goods, which contracted by -19.1% yoy in October compared to -16.6% in September 2020. With the decline in imports relative to exports, the country’s trade deficit narrowed slightly to US$1.77bn in October, compared to previous month of US$1.78bn. In 3Q20, Philippines’ economy contracted by 11.5% yoy, albeit smaller contraction when compared to -16.9% in 2Q20. The government has launched a fiscal package worth PHP595.6bn accounting for about 3.1% of GDP recently. Back in 11 Sept 2020, the Government approved a stimulus package worth PHP165bn to further support the country’s economic recovery. Despite the fiscal stimulus packages, the World Bank downgraded its GDP forecast for the Philippines economy, expecting it to contract by 8.1% in 2020, a revision downward from -6.9% forecast in October, taking into consideration the typhoons and floods in November.

Philippines’ headline inflation rate rose to a four month high of 3.3% yoy in November from 2.5% in October. This was the highest level since April 2019. The country’s inflation increased for a second straight month due to upward price pressure on selected agricultural commodities. Core inflation increased to 3.2% yoy in November from 3.0% in October. Headline inflation rate averaged 2.6% yoy in the first eleven months of 2020, which was at the upper end of the revised official target of between 2.4% to 2.6%. We expect higher inflationary pressure due to the recent tropical cyclones in November that resulted in billions of pesos of agricultural damage as well as supply disruptions. Despite possible higher inflation, Bangko Sentral ng Pilipinas (BSP) lowered its key policy rate by 25 bps to a record low of 2.0% in its November monetary policy meeting to support economic growth. As policy rate has been cut by a cumulative 200bps since early 2020, we expect BSP to leave rate unchanged at 2% in 2021, in view of rising inflationary pressure.

Separately, in Thailand, the headline inflation rate declined by 0.4% yoy in November from -0.5% in October. This was the ninth consecutive months of deflation. Core inflation stood at 0.18% yoy in November. In the first eleven months of 2020, Thailand’s inflation rate averaged -0.9%, which was below official inflation target range of between 1% and 3%. Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting, but guided that it would stand ready to use additional appropriate monetary policy tools if necessary. The BOT has cut its policy rate three times this year with a total of 75 basis points since early 2020.

Source: Affin Hwang Research - 11 Dec 2020