Performance of Philippine Agriculture
THE country’s agricultural output picked up slightly in the second quarter, driven by growth in crops and fisheries sectors, the Philippine Statistics Authority (PSA) said on Wednesday. Read the full story.
Inflation picks up in July
THE overall year-on-year increase in prices of widely used goods quickened slightly in July, the fastest in six months, the Philippine Statistics Authority (PSA) reported on Wednesday.
Preliminary data from the PSA showed headline inflation at 2.7% last month, picking up from the 2.5% pace in June and the 2.4% rate in July 2019.
The July figure was a tad higher than the 2.6% median in a BusinessWorld poll conducted late last week and fell within the 2.2%-3% estimate given by the Bangko Sentral ng Pilipinas (BSP) for that month.
Year to date, inflation settled at 2.5%, still within the BSP’s 2%-4% target band and above the 2.3% forecast for the entire 2020.
Core inflation, which discounted volatile prices of food and fuel, stood at 3.3% in July, accelerating from 3% the previous month and 3.2% logged last year.
Food-alone inflation eased to 2.5% from 2.7% the previous month, but faster than 1.7% a year ago.
The PSA attributed the July result mostly to the transport index, which recorded a faster inflation rate of 6.3% during the month from 2.4% in June.
The PSA also noted annual increments in the following commodity groups: alcoholic beverages and tobacco (19.3% from 18.5% in June); housing, water, electricity, gas and other fuels (0.8% from 0.3%); restaurant and miscellaneous goods and services (2.5% from 2.3%).
Moreover, the PSA reported preliminary figures for inflation as experienced by low-income households for July. With heavier weights on essentials such as food, the inflation rate for the bottom 30% of income households was 2.9%, slower than June’s three percent, but faster than July 2019’s 2.5%.
“The July 2020 [headline] inflation of 2.7% was within the BSP’s forecast range of 2.2-3.0%. The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to remain benign over the policy horizon due largely to the potential adverse impact of COVID-19 on the domestic and global economic prospects,” BSP Governor Benjamin E. Diokno said in a Viber message to reporters.
Mr. Diokno said inflation is likely to settle close to the midpoint of the government’s 2-4% target range for 2020 to 2022, adding the Monetary Board (MB) will consider the latest inflation outlook along with the release of second-quarter gross domestic product (GDP) data today (Aug. 6) when it meets on Aug. 20 to discuss monetary policy.
In a note, HSBC Global economist Noelan Arbis said inflation “remains largely contained” in the country, but noted a “few interesting surprises.”
“Transport costs continued to rise at an above-trend pace sequentially, despite global oil prices remaining relatively steady compared to the previous month. This might be a result of higher demand for transportation services, as the economy emerged out of lockdown. Other discretionary line items, such as restaurants and miscellaneous goods and services, also saw above-trend price increases perhaps due to the economy re-opening,” Mr. Arbis said, who noted these are more likely one-off price increases.
“We expect inflation to remain below midpoint of the BSP’s 2-4% target range for the remainder of the year,” he added.
OUTLOOK
“With moderate inflation, the BSP is likely to focus more closely on growth in its policy rate decisions in the months ahead,” HSBC’s Mr. Arbis said.
“All things considered, we expect the BSP to cut the policy rate by another 25 basis points (bps) to 2.00% by year-end, likely in [the fourth quarter]. Moreover, we forecast an additional 200-bp cut in the RRR (reserve requirement ratio) by year-end to provide another boost to domestic liquidity. This would bring the RRR down to 10% by year-end,” he added.
The BSP has so far shaved rates by a total of 175 bps this year, with the latest easing round in June. This brought the overnight reverse repurchase, lending, and deposit rates to record lows of 2.25%, 2.75%, and 1.75%, respectively.
The central bank has likewise cut the RRR of universal and commercial lenders by 200 bps in April to 12% to boost liquidity in the midst of the lockdown. The RRR for thrift and rural banks were also cut by 100 bps in July to three percent and two percent, respectively, to support increased lending for small businesses amid the crisis.
The MB is authorized to cut up to 400 bps of lenders’ reserve requirement this year to support banks’ lending capacity during the crisis.
For ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa, the slight uptick in inflation for July “may be enough” for the central bank to keep rates on hold at their next policy meeting.
“The BSP Governor [Diokno] previously indicated he would keep his stance unchanged ‘for at least two quarters’ and we believe he will refrain from cutting policy rates further to prevent real policy rates from falling too deep into negative territory,” Mr. Mapa said in an e-mail.
“BSP… has also shared that it will take the [second-quarter] GDP report into account for future policy decisions, but we only expect BSP to alter its stance should growth fall well past the most pessimistic GDP forecast for [the second quarter],” Mr. Mapa added.
For Security Bank Chief Economist Robert Dan J. Roces: “The latest print increases the probability that the BSP will again refrain from cutting its policy rate as real interest rates now at -0.45%. This expectation of steady rates will provide further support to the peso, although we have yet to see [the second-quarter] GDP numbers,” he said in a separate e-mail.
In a statement, the National Economic and Development Authority (NEDA) called for the national and local governments to bolster risk management systems to ensure sufficient supply and delivery of essentials that will support a stable inflation for the country.
“Although we expect that the overall consumer prices will remain benign until 2021, we recognize that the upside risks to the inflation outlook still remain,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua was quoted in the NEDA statement as saying.
“We need to remain vigilant and ensure that strategies are well-placed to ensure stable supply and delivery of essential commodities in all parts of the country,” he added. — Lourdes O. Pilar
External trade continues slump in June as coronavirus pandemic drags on
THE COUNTRY’S exports and imports continued to plunge, albeit at a slower pace in June, the Philippine Statistics Authority (PSA) reported on Wednesday.
Merchandise exports shrank by 13.3% to $5.33 billion in June after a 26.9% yearly decline in May, preliminary trade data from the PSA showed.
Likewise, merchandise imports fell 24.5% to $6.63 billion in June, slower than the 40.6% plunge recorded in May.
June marked the fourth straight month of decline for exports and 14th straight month of downturn for merchandise imports.
Trade deficit in June was recorded at $1.30 billion, smaller than the $2.64-billion gap in the same month last year.
For the first half, exports were down 17.8% to $28.43 billion, worse than the -4% expected by the Development Budget Coordination Committee (DBCC) this year
Meanwhile, the merchandise import bill dropped 29% to $39.03 billion on a cumulative basis against the DBCC’s target of a 5.5% contraction for the year.
That brought the year-to-date trade balance to a $10.60-billion deficit, smaller than the $20.42-billion shortfall in the same six months last year.
In a statement released by the National Economic and Development Authority (NEDA), the continued decline in merchandise exports can be partly due to “demand factors,” particularly the economic performance of the country’s main trading partners amid the pandemic.
“With restricted mobility and economic activity due to the global pandemic, GDP (gross domestic product) growth is negatively affected. Our major trading partners’ GDP has declined in the second quarter of the year, resulting in a reduced appetite for imported goods. This has led to lower demand for Philippine exports,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua was quoted in the NEDA statement as saying.
Export of manufactured goods, which account for around 82.7% of the total exports in June, slipped 13.6% year on year to $4.41 billion from $5.10 billion last year. Total agro-based products were also down 18.1% to $403.51 million in June from $492.50 million previously.
Electronic products, which made up more than half of the total June export sales, contracted by 10.4% to $3.18 billion. Semiconductors, which account for more than three-fourths of electronic products, also slid by 8.1% to $2.44 billion.
On the import side, raw materials and intermediate goods, which account for 42.9% of the imports bill in June, declined by 10.7% to $2.85 billion.
“This slower decline in the country’s trade performance signals the resumption of economic activities,” NEDA’s Mr. Chua said.
Even so, external trade is expected to contribute negatively to economic growth in the second quarter.
“[Second-quarter] GDP performance is expected to be worse than [first-quarter GDP]… mainly due to the pandemic. The decline in merchandise exports is a contributing factor to the decline, which is also caused by the pandemic,” John Paolo R. Rivera, Asian Institute of Management economist and adjunct faculty, said in an e-mail.
“Trade performance for the rest of the year will depend on the decisions taken by the government now to manage and contain the pandemic and chart a rapid and robust economic recovery. A good policy mix from the fiscal sector and monetary authority will influence trade as it should create a favorable trading, business, and investment environment for exporters and importers,” Mr. Rivera added.
The government will release second-quarter GDP data today.
Philippine Exporters Confederation, Inc. President and Chief Executive Officer Sergio R. Ortiz-Luis, Jr. said export performance is expected to return to positive territory towards the end of the year as businesses open up and lockdowns loosen.
“By next year, we think that it will definitely be positive,” he said in a phone interview.
“[These figures] should translate to weaker potential output for the Philippine economy in the coming months,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a note to reporters.
“[We] also expect GDP momentum to be slowed even further as the flow of capital goods, raw materials and consumer goods remains weak with positive GDP growth only expected to return in a base-effect induced rebound in 2021,” Mr. Mapa added.
China was the top market for Philippine goods in July, accounting for 16.7% with $891.58 million. It was followed by Japan with a 15.1% share or $807.05 million, and the United States’ 14.4% share or $768.66 million.
China was also the Philippines’ biggest source of foreign goods purchased in July, accounting for 23.7% at $1.57 billion. Other major import trading partners were Japan and the US, which contributed 8.5% ($567.14 million) and 8.2% ($544.28 million), respectively. — Jobo E. Hernandez
1st quarter GDP drop faster than initially reported
By Marissa Mae M. Ramos, Researcher
THE PHILIPPINE ECONOMY in the first quarter declined at a faster pace than previously reported, the Philippine Statistics Authority (PSA) said a day before it announces preliminary figures for the second quarter.
Gross domestic product (GDP) — the value of all finished goods and services produced in the country at a given period in time — fell by 0.7% in the January-March period, faster than the 0.2% drop initially reported on May 7, the PSA said yesterday.
Growth in the services sector was revised downward to 0.6% from the previously reported 1.4%. Meanwhile, the decline in the industry sector was downgraded to 3.4% from three percent.
The services sector slipped 0.6% in the first quarter, slower than the initially reported decline of 1.4%.
Upward revisions in growth rates were noted in the following sub-sectors: wholesale and retail trade (1.9% from 1.1%); repair of motor vehicles and motorcycles (1.9% from 1.1%), public administration and defense; compulsory social activities (5.5% from 5.2%), and education (1.1% from 0.9%).
Meanwhile, downward revisions were noted in the following services sub-sectors: transportation and storage (-11.4% from -10.7%); accommodation and food service activities (-16.4% from -15.3%); information and communication (5.1% from 5.7%); financial and insurance activities (9.1% from 9.6%); real estate and ownership of dwellings (-2.3% from 2.2%); professional and business services (0.2% from 0.7%); human health and social work activities (4.7% from 9.2%); and other services (-10.6% from -7.6%).
The industry sector’s performance was revised to a 3.4% drop in the first quarter, from the initial 3% slump. Among subsectors posting faster declines were manufacturing (-3.8% from -3.6%), construction (-2.9% from -1.8%); and electricity, steam, water, and waste management (4.9% from 5.3%).
Meanwhile, mining and quarrying recorded a 21% plunge during the period, slightly slower than the previously estimated -22.3%.
The decline in the agriculture, hunting, forestry, and fishing sector was revised to 0.3% from 0.4% initially.
On the expenditure side, growth in government spending was trimmed to seven percent from 7.1%. Exports of goods and services declined by 4.4%, faster than -3% previously.
Likewise, capital formation and imports of goods and services saw revisions to -17.4% (from -18.3%) and -8.7% (from -9%), respectively.
On the other hand, growth in household spending was slightly revised upward to 0.24% from 0.17%.
The first-quarter 2020 revision comes ahead of Thursday’s release of the preliminary estimate for GDP performance in the second quarter.
A BusinessWorld poll of 17 economists yielded a median decline of 11% in the second-quarter GDP.
The government, through the interagency Development Budget Coordination Committee, expects the economy to shrink 2% to 3.4% this year. It is lower than the initial estimate of one percent contraction to flat growth made in March.