Daily Update: April 27, 2023

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Favorable Demographics and Economic Growth Buoy the Philippines

Media attention has focused on the Philippines this week due to joint military exercises between the US and Philippine armed forces. While these exercises appear to reflect geopolitical tensions in the South China Sea, they distract from positive economic news coming out of the Philippines over the past few years. Favorable demographics alongside export growth and healthy remittances from overseas workers have driven enviable growth for the Philippines as the country recovers from a COVID-19-related economic downturn.  

Much has been made of India’s favorable demographics since the country recently passed China as the world’s most populous nation. An unusually high percentage of India’s population is of working age, and that number is projected to grow over the next seven years. However, the demographics for the Philippines look very similar. GDP growth is well correlated with the percentage of working-age people in a country, as seen in China over the last two decades. These demographics also mean greater demand for savings and protection insurance, according to S&P Global Ratings. This can lead to a virtuous cycle whereby economic growth, driven by population, creates investment opportunities, which attracts investment from insurance and household savings.

According to S&P Global Market Intelligence Asia-Pacific Chief Economist Rajiv Biswas, GDP growth in the Philippines rebounded to 5.6% in 2021, despite the country experiencing negative growth in 2020 due to the COVID-19 pandemic. In 2022, GDP growth remained strong at 7.6%, which is the fastest rate of economic growth recorded by the Philippines since 1976. This year, healthy GDP growth is expected to continue at about 5.8%. Because of this forecast, the country’s GDP is expected to reach US$1 trillion by 2033. The one trillion number would make the Philippines a member of an exclusive club and one of the largest emerging markets in Asia-Pacific, as well as a leading emerging market globally. 

Exports have been another bright spot for the Philippine economy. In 2022, merchandise exports rose 5.6% despite a slowdown in mainland China, a key export market. The Philippines’ exports to China contracted 5.1% in 2022, but a rise in exports to the US, up by 4.2%, Singapore, up by 17%, and South Korea, up by 21.5%, picked up the slack.

GDP growth often creates inflationary pressure. In the Philippines, the headline inflation rate stood at 7.6% year over year in March compared with 8.6% year over year in February. This tracks moderating inflation rates globally. However, even at 7.6%, inflation remains well above the 2%-4% target range of the Philippine central bank, or Bangko Sentral ng Pilipinas. According to S&P Global Ratings, the over-target core inflation in the Philippines indicates a lack of excess capacity in the economy, perhaps due to long-term output losses resulting from the pandemic. 

A distinct feature of the Philippine economy is the importance of remittances from Filipinos working overseas. Despite global job losses in 2020 associated with the COVID-19 pandemic, remittances to the Philippines have remained remarkably stable over the past three years at about 10% of the country’s GDP. Remittances by workers abroad rose 5.1% year over year in 2021 to US$34.9 billion. In 2022, remittances by workers abroad rose 3.6% year over year to US$36.1 billion.

Today is Thursday, April 27, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

US T-Bills – Risk On, Risk Off

US treasury investments are the go-to risk free asset for many global investors. The $4.9T market offers global investors a liquid, safe haven, traditionally protecting them from market volatility and credit risk. Despite this, developments surrounding this asset class have sent yields whipsawing over recent months. The problems in the banking sector recently led the US 10-year yield to fall from 3.92% to 3.47% in a matter of days, for example.

—Read the article from S&P Global Market Intelligence

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Capital Markets

First Republic Records Largest Jump In Short Interest Among US Banks In March

Short interest in First Republic Bank soared in March as concerns over the institution spiked amid the bank's significant deposit outflows following the failures of two other regionals. Median short interest in the bank's shares outstanding for March was 29.3%, sharply up from 2.69% at the end of February, according to S&P Global Market Intelligence data. That marked the biggest percentage point increase in short interest among all publicly traded banks during the month.

—Read the article from S&P Global Market Intelligence

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Global Trade

Can Sakarya Pave The Way For Turkey’s Gas Independence?

Turkey's reliance on natural gas imports to meet its energy demands has been a long-standing challenge for the country. Over 98% of the country's annual gas consumption was imported in 2022, making natural gas the primary energy source for electricity generation. As per recent estimates, Turkey's annual gas consumption amounts to around 1.9 Tcf per year, with the majority being piped from neighboring Russia or imported as Liquified Natural Gas (LNG) from the USA and Qatar.

—Read the article from S&P Global Commodity Insights

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Sustainability

Unpacking the EU Taxonomy: Understanding Substantial Contribution

The EU Taxonomy is an attempt to define what makes a “green” investment and is a cornerstone of the EU’s sustainable finance policy agenda. The EU Taxonomy can be thought of as a dictionary defining which economic activities can be considered environmentally sustainable. The core question now facing companies, investors and financial institutions is how to identify Taxonomy-aligned activities and revenue.

—Read the article from S&P Global Sustainable1

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Energy & Commodities

Despite Global Financial Uncertainties, Halliburton Sees Upstream Oilfield Spending Growth In 2023

Global financial markets may appear cloudy, but big oilfield services provider Halliburton sees upstream customer spending up by low double-digits in 2023 not only in higher-growth international markets but also in more moderated North America, the company's top executive said April 25. International spending should grow in the "high teens" in 2023, with most new activity coming from the Middle East, Asia and Latin America, Halliburton CEO Jeff Miller said in webcast remarks during a first-quarter earnings conference call. He said North America, which led the current oil and gas industry upturn, should see "at least" 15% more spending this year,

—Read the article from S&P Global Commodity Insights

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Technology & Media

Self-Driving Cars Won’t Happen Without Smarter ADAS

In imagining a future of self-driving cars, progress toward developing these highly automated, software-defined vehicles has led to increased standardization of hardware. One of the primary drivers behind the continual improvement of Advanced Driver Assistance Systems (ADAS) is the increased use of Light Detection and Ranging (Lidar) sensors in Level 2+ and Level 3 automated driving systems, which are set to experience significant growth in the coming years.

—Read the article from S&P Global Mobility

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