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Thursday, August 17, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Wednesday, January 11, 2017 | Manila, Philippines

BY L.J.G. Uy, Senior Researcher; R.O.R. Reusora, L. O. Pilar, Researchers

Trade remains challenging; factory output picks up

MERCHANDISE TRADE will remain a drag in the calculation of the country’s economic growth, as export receipts contracted in November 2016 while the import bill continued to increase.

Preliminary data from the Philippine Statistics Authority (PSA) showed total export sales drop 7.5% to $4.732 billion in November 2016 from the $5.118 billion recorded in the same month a year earlier. The drop was on account of the 10.6% decrease in earnings from manufactured goods to $4.136 billion.

The November turnout brought year-to-date export receipts to $51.361 billion, a 5.2% decrease from 2015’s $54.168 billion, putting the government’s 3% growth target for 2016 further out of reach.

Electronic products -- which accounted for 53.8% of total export earnings -- declined by 7.9% to $2.547 billion last year from $2.764 billion recorded in the same period of 2015.

“The weakness of Philippines electronics sector exports is of particular concern because the global electronics sector has shown a strong upturn during recent months,” Rajiv Biswas, Asia Pacific Chief Economist at IHS Global Insight, said in a report.

“The most recent SIA (Semiconductors Industry Association) data showed that worldwide sales of semiconductors rose by 7.4% year-on-year in November 2016, in sharp contrast to the 9.7% decline in semiconductors exports from the Philippines in November 2016,” Mr. Biswas added.

“For the first 11 months of 2016, exports of semiconductors from the Philippines contracted by 3.3% year-on-year,” he noted.



“A contributory factor to the overall weakness of exports measured in USD terms has been the depreciation of the peso against the USD during 2016.”

Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion was of the same opinion, saying: “One would expect an increase in exports when the peso is getting cheaper.

“However, in this particular case, it is the opposite. This drop might be the result of lower demand from clients abroad who consume or use these exports.”

Japan remained the Philippines’ top export destination in November with a 19% market share at $898.83 million albeit down by 21.8% from $1.149 billion in November 2015. The US came in second with 13.9% of the total at $655.46 million, likewise 13.5% down from $758.08 million.

IMPORTS GROWING STILL
In contrast, increase in inbound shipments once again picked up in November, marking four straight months of growth as orders of capital goods, raw materials and consumer goods increased by double digits.

PSA data showed a total of $7.298 billion worth of goods was shipped into the country, up 19.7% from revised $6.094 billion recorded a year earlier.

For the year, inbound shipments grew 13.7% to $73.724 billion, against the government’s 10% target for 2016.

Consequently, the country’s balance of trade in goods in November registered a deficit of $2.566 billion, wider than the $976.87-million gap a year ago.

November’s trade deficit is the second-worst on record since the $2.638 billion recorded in January 2016.

“The surge in trade transactions with East Asia and the ASEAN (Association of South East Asian Nations) boosted the performance of imports, which also signals an increase in the purchasing power of Filipinos. We expect that this further increased in December 2016,” said Socioeconomic Planning Secretary Ernesto M. Pernia.

Imports coming from East Asia -- which includes China and Japan -- grew 16.5% in November while those from the rest of Southeast Asia grew 31%.

Analysts at Nomura Global Research said in a report that the turnout for November “surpassed expectations” with the 19.7% print above their 16.5% forecast.

“The underlying trend in consumer and capital goods imports has therefore remained strong, notwithstanding some moderation following the May 2016elections, which highlights the strength of consumer and investment spending and we believe will continue to underpin the still-solid growth outlook,” Nomura’s Euben Paracuelles and Lavanya Venkateswaran said in the report.

Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, shared this view: “Higher purchases of iron and steel (100%), transport equipment (76.3%) and industrial machinery and equipment (52.2%) point to strong investment spending in the country.”

Import growth is a leading indicator for future factory and export performance because they reflect items shipped into the country for processing, a portion of which is re-exported.

Payments for capital goods grew by 29.7% to $2.418 billion during the month.

Likewise, consumer goods were up 32.6% at $1.409 billion.

Total importation or raw materials and intermediate goods in November valued at $2.774 billion -- accounting for 38% of total imports -- also increased by 11.1% over last year’s $2.497 billion.

Among the country’s top 10 major types of goods, only electronic products -- the country’s top import which accounted 26.8% of the total import bill -- registered a decrease of seven percent during the month to $1.956 billion.

“While higher imports subtract from gross domestic product, it is a good development as it indicates healthy domestic demand,” Land Bank’s Mr. Dumalagan said.

FACTORIES CHURN OUT MORE
Another indicator of local demand would be factory output, which grew for the 17th straight month in November brought about by significant expansion from heavily-weighted sectors.

Results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed manufacturing, as measured by the volume of production index, increased by 14.6% year-on-year, compared to October’s revised 11.3% and the 4.4% expansion logged in November 2015.

The November reading is also faster than the eight percent growth estimate Moody’s Analytics made over the weekend.

Year-to-date growth of factory production averaged 13.79%, faster than the 2.34% seen in the comparable period of 2015.

Contributing to the turnout were six major sectors, namely petroleum products (80.3%), transport equipment (40.4%), food manufacturing (24.6%), rubber and plastic products (16.1%), tobacco products (11.1%) and beverages (10.3%).

“The manufacturing sector is expected to exhibit even stronger growth in December 2016 because of increased consumer demand during the Christmas season of 2016 compared to 2015. Looking ahead, we see the sector benefitting from strong private and public investments,” said Mr. Pernia, who is also the National Economic and Development Authority chief.

“Low inflation, low unemployment, and strong remittances will also continue to drive domestic demand, and will boost manufacturing in the Philippines.”

Capacity utilization, which is the extent by which industry resources are being used in the production of goods, averaged at 83.8% for November, with 55% operating at 80% and above capacity utilization rates.

Looking forward, “the government must continue to pursue efforts that will boost the country’s growing manufacturing sector and provide quality jobs,” NEDA’s Mr. Pernia said in the statement.

As for trade, Mr. Dumalagan said that the trajectory of export growth for 2017 “is a bit uncertain because of the likely protectionist stance” of US president-elect Donald J. Trump.

Given the latest external trade results, analysts at Nomura kept their forecast for Philippine current account surplus to narrow to 0.5% of gross domestic product (GDP) this year from a forecast of 1.3% of GDP for 2016.

In comparison, the Bangko Sentral ng Pilipinas forecast the surplus to narrow to 0.3% of GDP in 2017 from 0.8% in 2016.

“However, we are not concerned with the narrowing current account surplus and the spectre of ‘twin deficits’ (i.e. a shift to a current account deficit and a higher fiscal deficit), because this dynamic reflects a much-indeed increase in investment ratios, in our view, as demonstrated in the sharp pickup in capital goods imports,” the Nomura analysts said.

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