Trade, factory data back growth hopes

MERCHANDISE EXPORTS grew by double-digit pace for the third straight month, while factory output increased at a faster clip in May, the Philippine Statistics Authority (PSA) reported yesterday, supporting hopes for robust economic growth this quarter.

Preliminary data from the PSA showed merchandise export sales grew by 13.7% to $ 5.489 billion last May, slower than the previous month’s 19.1% increment, but still a turnaround from the revised 1.5% contraction in May of last year.

With total imports recording a 16.6% expansion to $8.242 billion last May, the country’s balance of trade in goods deficit widened by 22.9% to $2.753 billion, a monthly record, according to Nomura Global Research.

The latest merchandise export turnout brought year-to-date receipts to $26.112 billion, an acceleration of 16.3% from the $22.46 billion in the same five months of last year.

The year- to- date growth is now way above the Development Budget Coordination Committee’s projection of five percent for the entire 2017.

Despite the slowdown, Nomura in a report said the growth was still robust since the average increase in April and May was on track to sustaining first quarter’s 16.3% expansion.

Outbound shipments of manufactured goods, which accounted for 84% of total exports in May, went up 8.5% to $ 4.611 billion, while mineral products — with a 6.7% share of the total — increased by 56.2% to $370.465 million.

Outbound shipments of agrobased and forest products registered sharp increases as well of 53.4% ($ 373.42 million) and 648.5% ($11.194 million), respectively.

“The overall improvement in global demand is the main reason for the recovery in exports,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

Adding to robust demand was the depreciation of the peso against the dollar, which also boosted exports by making Philippine products relatively cheaper in foreign currency terms, he added.

Japan remained the Philippines’ top export market in May with a 17.1% market share at $939.63 million, albeit a decrease of 9.4% from $1.039 billion in May 2016. The United States came in second with 14.1% share at $772.5 million, up by 7.1% from last year.

“In terms of markets, countries in East Asia remain strong trade partners with 48.3% share in export revenue and 46.2% share in imports. Trade with ASEAN (Association of Southeast Asian Nations) is also strong, with 15.7% share in export receipts and 26.1% share in inward shipments,” the National Economic and Development Authority (NEDA) quoted its head, Socioeconomic Planning Secretary Ernesto M. Pernia, as saying.

Mr. Pernia noted that the sixth straight month of merchandise export growth “is consistent with the global pickup.”

NEDA noted further that exports to the European Union marked their third consecutive month of double-digit growth at 38.5%, and that ASEAN remained “a promising destination for exports”, with exports to neighbors growing by 25.6% in May.

Going forward, Mr. Pernia said the government “expects Philippine exports to increase by about $100 million annually in the next five years.”

In the short run, Nomura expects exports growth to remain firm, citing the strength of imports of capital goods and raw materials.

By major type of product, raw materials and intermediate goods — which accounted for 38.9% of total import payments — increased by 14.5% to $3.209 billion.

Capital goods, which had a 33.6% share — increased by 20.1% to $2.772 billion.

Consumer goods as well as mineral fuels, lubricants and related materials likewise recorded increases of 8.3% (to $1.354 billion) and 33.1% (to $874.5 million), respectively.

Year- to- date, total inbound shipments grew 12.3% to $37.154 billion, against the government’s 10% target for 2017.

“The rebound in capital goods and consumer goods imports point to robust domestic demand, consistent with a re-acceleration of government capex after a relatively slow start to the year, and resilient household consumption,” Nomura said.

“The pick-up in raw materials also suggests that electronics exports will remain robust in the next few months,” it added.

MANUFACTURING PICKS UP

The rebound in imports was mirrored by the pickup in manufacturing output in May.

The preliminary result from the Monthly Integrated Survey of Selected Industries showed that factory output, measured by the volume of production index, grew by 5.8% year-on-year.

This figure is higher than the downwardrevised 4.3% growth rate in April, but lower than the 7.4% posted last year.

The result meets expectations of manufacturing output picking up speed from the slowdown in April, albeit below analysts’ estimates. Moody’s Analytics on Monday estimated a 7.8% increase, citing strong domestic demand and robust household spending as drivers of accelerated growth. Nikkei’s Purchasing Managers’ Index (PMI) had estimated a five-month high of 54.3 that kept the Philippines in Southeast Asia’s lead for the second straight month.

In a statement, NEDA credited the acceleration in manufacturing output growth to an increase in production of export-oriented and construction-related goods, specifically basic metals, fabricated metals and non-metallic mineral products.

Fabricated metal products contributed significantly to the growth in factory output, posting the biggest gain of 116.9%.

Eleven sectors registered double- digit gains: leather products (44.3%); footwear and wearing apparel (34.6%); furniture and fixtures (34.4%); basic metals (29.1%); tobacco products ( 28.2%); printing ( 28.2%); nonmetallic mineral products ( 22.6%); transport equipment (22.2%); petroleum products (16.8%); electrical machinery (13.0%) as well as paper and paper products (11.1%).

Capacity utilization rate, which represents how much of factory capacity is in use, averaged 83.8%, with 11 of the 20 sectors registering capacity utilization rates of at least 80%.

NEDA also holds a positive outlook for factory output growth results for the rest of the second quarter, to be influenced by an expected growth in construction product outputs toward the end of the year, backed by the government’s massive infrastructure spending.

“Manufacturing output is expected to sustain its growth toward the end of the second quarter, driven by buoyant domestic demand and optimistic business outlook,” the agency said further in its statement.

Last May’s factory output marks the 23rd straight month since July 2015 that industrial output growth stayed in positive territory.

Angelo B. Taningco, economist at Security Bank, pointed to greater client demand due to high corporate incomes as the driving force behind the acceleration in factory output growth.

“… The acceleration in manufacturing output growth in May from April may have been driven by more robust growth in new manufactured goods orders amid greater client demand,” Mr. Taningco said in an e-mail.

“Positive corporate earnings and business sentiment may have induced the increase in demand for manufactured items.”

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said that the acceleration in May reflects the positive view on local manufacturing despite domestic political issues.

“This acceleration is consistent with the observation that Philippine manufacturing is resurging despite the general sentiment of uncertainty brought about by external factors including local political situations. This confirms that the manufacturing sector is on a positive growth path,” Mr. Asuncion said in an e-mailed comment.

Analysts expect growth to speed up in the next months due to improving economic conditions that will continue to fuel demand.

“[The] outlook on manufacturing sector in the next couple of months is still positive especially since I expect increasing demand for manufactured products amid improving economic conditions,” Security Bank’s Mr. Taningco said.

Union Bank’s Mr. Asuncion agreed, saying: “Philippine manufacturing [ growth] is still expected to be positive and will likely pick up as the global economy continues to recover… The general confidence on the growth potential of the Philippine economy continues despite external and internal political challenges.”

Improving manufacturing is expected to have contributed to gross domestic product (GDP) growth this quarter which NEDA’s Mr. Pernia expects to come close to seven percent when the PSA reports data on Aug. 17.

GDP grew by a slower-than-expected 6.4% in the first quarter, even as this placed the Philippines second among major Asian economies next to China, whose growth clocked 6.9% in the same three months. The government targets the economy to grow 6.5-7.5% this year from 2016’s actual 6.9%.