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Monday, October 23, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Monday, December 12, 2016 | Manila, Philippines

BY Jochebed B. Gonzales & Christine Joyce S. Castañeda Researchers

October fuels export recovery hopes

MERCHANDISE EXPORTS expanded for the second month in October, albeit slower, amid a recovery in major markets, the Philippine Statistics Authority (PSA) reported on Friday.

Value of outbound shipments grew 3.7% year on year to $4.758 billion, easing from September’s 5.1% growth. October was the second month of positive results coming from a 17-month contraction that began April 2015.

Electronic products, which account for more than half of the country’s exports, increased 4.7% to $2.494 billion. The semiconductors subgroup inched up 0.5% to $1.709 billion.

In January to October, exports however were still down by 5.3% to $46.449 billion -- against a three percent target for 2016 -- while import payments climbed 13.1% to $66.426 billion in the same period, or almost twice the government’s full-year growth forecast of seven percent.

In October alone, the country bought $6.921 billion worth of goods from abroad, an increase of 5.9 % from a revised $6.534 recorded a year earlier but lower than the $7.101 last September.

“Total trade was boosted by higher exports and imports to and from Asia and other major markets. For the year’s first ten months, it is good to note that total trade remains steady at 4.7%,” said Socioeconomic Planning Secretary Ernesto M. Pernia in a statement.

Sergio R. Ortiz-Luis, Jr., president of Philippine Exporters Confederation, Inc. (PhilExport) agreed, saying: “The [exports] market is beginning to recover.”

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, said the October exports and imports data were “consistent with a weaker peso and improving global demand.”

“Exports increased for a second month, as the depreciation of the peso made Philippine goods cheaper in foreign currency terms. Moreover, exports also surged due to improving economic activities in China, Japan and the US -- the main trading partners of the Philippines,” he added.

But for Mr. Ortiz-Luis, Jr., the effect of the country’s weaker currency was only secondary.

“It helps our exports to become competitive, but other currencies also depreciated. It only helps retain our position. The real reason is the recovery of the markets,” he said.

Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri, Jr. said the weakening peso may have also led to postponement on plans to import non-essentials.

He said election-related spending may have bolstered imports in late 2015, causing the expansion to slow to single-digit in the last two months.

With exports growing at a slower pace than imports, the country posted a $2.163-billion deficit in its balance of trade in goods last October.

The trade gap widened to $19.977 billion year-to-date from $17.814 billion at end-September.

Given these trends, the trade deficit is expected to reach $23.8 billion or about 91% of overseas Filipino remittances, said BPI’s Mr. Neri.

“This is the highest ratio in five years which means more remittances are needed to fund the country’s trade gap and payment of foreign debt obligations,” he said.

“We expect the trade gap to continue widening and bring the Philippines current account position to a full year deficit again by 2018, the first deficit in 16 years.”

In a separate report, the PSA said factories in the country ramped up production for the 16th straight month last October, propped up by domestic demand and upbeat business investment spending.

Preliminary results of PSA’s Monthly Integrated Survey of Selected Industries showed that manufacturing, as measured by the volume of production index (VoPI), grew 8.4% year-on-year, the weakest performance in five months.

The October growth in factory production was slower than the previous month’s revised 9.2% but was faster than the year-earlier 1.5%.

October’s turnout marks the 16th straight month since July 2015 that industrial output stayed in positive territory.

Year to date, factory production averaged 12.4%, faster than the 2.1% logged in 2015’s first 10 months.

Capacity utilization -- the extent by which industry resources are being used in the production of goods -- averaged at 83.7% for October, with 11 of the 20 major industries operating at 80% and above utilization rates.

In a statement, the National Economic and Development Authority (NEDA) attributed the growth in manufacturing output to “higher production of petroleum products, non-electrical machineries and transport equipment.”

Petroleum products saw biggest jump at 37.0%. Production of machinery except electrical surged by 24.4% while transport equipment grew 19.4%.

Another sector that posted double-digit growth in production was food manufacturing at 14.3%.

“Factory output continued to increase in October 2016 primarily because of strong consumer demand and upbeat business investment spending in the Philippines,” Landbank’s Mr. Dumalagan said.

“The strength of the country’s household spending is reflected by the steady rise in food manufacturing since December last year,” he added.

“Meanwhile, firms’ willing to invest can be seen in the surge in transport and machinery equipment since early this year.”

PhilExport’s Mr. Ortiz-Luis, Jr. said the growth in factory production “coupled with the fact that the economy is improving [indicated] that we still remain competitive, and there were increases in foreign direct investments, merong nagtatayo ng (still putting up) factories.”

Latest available central bank data show net foreign direct investments (FDIs) to the Philippines hitting a four-month-high $711 million in August. August inflows pulled the eight-month tally to $5.406 billion, 71.1% more than the $3.159 billion net FDI seen in the comparable year-ago period and closer to the central bank’s $6-billion forecast for 2016.

Sought for his outlook for the rest of the year, Landbank’s Mr. Dumalagan said: “[I]ndustrial output would likely expand steadily until the end of 2016, although growth might moderate due to rising interest rates, which could dampen investment spending.”

“Growth sources next year include the potential recovery in oil prices and an expected acceleration in exports amid improving global demand,” he said.

Mr. Dumalagan also noted that aside from higher interest rates, other factors that could temper manufacturing growth include the rise in ‘sin’ taxes as well as possible external trade disruptions because of US President-elect Donald J. Trump’s protectionist slant.

Mr. Pernia, NEDA’s director-general, said construction-related manufacturing will contribute a lot to growth given the government’s commitment “to fast-track implementation of infrastructure projects and programs.”

However, he added that “[t]o raise the local industries’ competitiveness in the increasingly integrated global economy, we need to increase both public and private investments in R&D (research and development).” -- with a report from Lourdes O. Pilar

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