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Philippine growth to ride 'short-lived' export boost — Nomura

by April 29, 2017 General

In an Apr. 27 Asia Special Report, titled: “Asia’s steep but short-lived export upcycle”, Nomura said it raised its Philippine gross domestic product (GDP) growth forecast to 6.7% this year from 6.3% previously, and to 6.8% in 2018 from a 6.5% previous projection “because, in addition to stronger investment spending, more than half of its exports are in electronics, which are beginning to catch up with the rest of the region”.

“Electronics exports are catching up with the regional upcycle, which complements already strong domestic demand,” the report read, recalling that “[t]here were few signs the Philippines was benefitting from the electronics export upcycle until January 2017, when electronics export growth jumped by 10.4% y-o-y following a 1.9% decline in Q4.”

“[I]t then accelerated to 15.9% in February, driven by a surge in export volumes while price effects have been somewhat more subdued than in other ASEAN countries,” it added.

“By country, demand for Philippine exports seems to have picked up from all key trading partners so far this year, with the exception of Japan.”

Nomura’s projection for this year falls within the government’s growth target of 6.5-7.5% for this year, but its 2018 forecast falls short of a 7-8% goal.

GDP grew by an upwardly revised 6.9% in 2016 against the government’s 6-7% target for that year, spurred by strong expansion of investments and of household spending, as well as a recovery of government spending.

Nomura’s projection this year for the Philippines compares favorably with its forecast for the Association of Southeast Asian Nations (ASEAN)-5 — consisting of Indonesia, Malaysia, the Philippines, Thailand and Singapore — which are expected to post a cumulative five percent expansion, up from a preliminary 4.7% projection. The Philippines is projected to top the other ASEAN members covered for this year and next.

Merchandise exports are expected to contribute to first-quarter GDP growth — which Socioeconomic Planning Secretary Ernesto M. Pernia has estimated at seven percent and which the government is scheduled to report on May 18 — as they increased in value by 17.4% to $9.973 billion as of February from 2016’s first two months, against a two percent full-year 2017 projection for increase in goods shipments of the Development Budget Coordination Committee that sets national budget assumptions.

That wasn’t the case last year, when outbound Philippine shipments fell 2.42% to an upwardly revised $57.406 billion from 2015’s $58.827 billion against a three percent growth target for 2016.

Overall, Nomura now expects export growth in Asia excluding Japan “to start a gradual moderation” next semester “on base effects and slowing China demand”.

“We see risks of a more pronounced export slowdown in 2018, which is when we expect the electronics cycle to turn decisively lower and Chinese GDP growth to ease to 6.2% from 6.7% this year,” the report read, adding that “[a] likely increase in protectionist policies from the US would provide an additional headwind.”

Thus, Nomura said, [i]n 2018, we expect the divergence of (GDP) growth in the region to resume, with Indonesia, the Philippines and India expected to grow faster while Malaysia, Singapore and Thailand slow, in line with our view on the export cycle.”