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Faster factory, export growth expected

Posted on July 10, 2017

FACTORY OUTPUT and export of goods likely picked up in May, fueled by improving global demand and helping propel second-quarter economic growth, according to two analyses issued last week.

Electronics products accounted for a chunk of both merchandise exports and imports at 49.68% and 25.74%, respectively, in the four months to April.
The Philippine Statistics Authority (PSA) is scheduled to report both sets of data on July 11.

Moody’s Analytics expects manufacturing -- as measured by volume of production -- to have grown by 7.8% that month, picking up from April’s 5.9% and May 2016’s 7.4% as producers scrambled to meet stronger local and foreign demand.

“The archipelago’s manufacturers are receiving a boost from improved global demand, which is supporting the export-oriented electronics industry,” Moody’s Analytics said in its note.

If realized, factory output will recover from a slowdown in April, when the growth was fueled by higher production of fabricated metal products, furniture and fixtures, petroleum products and paper products.

Economists have said that improving growth prospects in advanced economies would benefit the Philippines by way of stronger demand for the latters’ products.

The sustained growth of industrial production will still be driven primarily by strong domestic demand, fuelled by robust household spending, Moody’s analysts said.

“Both private investment and consumption are rising rapidly thanks to favorable demographics and ample investment opportunities that will leave the Philippines as one of the fastest growing economies globally for the foreseeable future.”

The estimate made by Moody’s jibes with the picture for that month painted by the Nikkei Philippines Purchasing Managers’ Index (PMI) that showed the reading at a five-month-high 54.3, enabling the Philippines to take back from Vietnam the Southeast Asia lead which it lost to that neighbor in February. The Philippine PMI eased to 53.9 in June, even as the country maintained its lead in the region for the second straight month.

“While the domestic market remained the key pillar of manufacturing growth, there were signs that external demand is contributing more to the expansion. Export order growth strengthened to a three-month high,” the latest Philippine PMI report read.

In a separate research note, DBS Bank economist Gundy Cahyadi said the country’s outbound shipment of goods likely picked up further by a double-digit pace in May, even as balance of trade is expected to have remained negative as merchandise imports continued to increase.

The Singapore-based bank said exports likely rose by 15.7% from a year ago coming from a 12.1% jump in April, but noted that growth will likely ease this semester.

“While staying supportive of the GDP growth outlook, expect export growth to moderate in 2H17,” Mr. Cahyadi said, noting that the slowdown likely started towards the end of the second quarter, as seen across Asian economies.

On the other hand, merchandise imports likely went up by 2.2% annually, recovering from a 0.1% decline the previous month and remaining bigger than outbound shipments of goods.

Mr. Cahyadi said that the trade balance likely remained at a $1.6-billion deficit in May, as the country imports more goods to sustain construction and other economic activities.

The government expects merchandise exports -- which increased in value by 15.3% annually to $20,323 billion in the four months to April -- and imports -- which grew 11.1% to $28.91 billion -- to grow by five percent and 10%, respectively, this year. Next year is expected to see merchandise export growth to pick up further to seven percent as merchandise imports’ climb steadies.

Electronics products accounted for a chunk of both merchandise exports and imports at 49.68% and 25.74%, respectively, in the four months to April. Semiconductor and Electronics Industries in the Philippines Foundation Inc. said last month that it expected overseas sales of its members to grow by about six percent to $30-31 billion this year from 2016’s actual $28.871 billion.

Both improving manufacturing and recovering merchandise export sectors -- together with sustained agricultural production -- are expected to have contributed to gross domestic product growth (GDP) in the second quarter, which Socioeconomic Planning Secretary Ernesto M. Pernia expects to come close to seven percent when the PSA reports the data on Aug. 17.

GDP grew by a slower-than-expected 6.4% in the first quarter, as household consumption -- which contributes more than 60% to national output -- eased and government spending flattened out.

The government targets the economy to grow 6.5-7.5% this year from 2016’s actual 6.9%, and then by 7-8% annually from next year to 2022, when the current administration of President Rodrigo R. Duterte ends its six-year term. -- M. L. T. Lopez