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Q2 growth seen helped by factory production

by August 10, 2016 General
Top Story

Posted on August 11, 2016

THE PHILIPPINE ECONOMY last quarter likely got a boost from manufacturing, even as exports contracted for a 15th straight month at the close of the period.

Preliminary data from the Philippine Statistics Authority (PSA) show that factory output expanded last June, with the volume of production index (VoPI) increasing by 8.5% year on year, a turnaround from the 1.7% contraction in 2015’s comparable month.

The government is scheduled to report official second-quarter gross domestic product (GDP) data on Thursday next week. Growth last quarter is widely expected to have at least steadied from January-March’s 6.9% — hitting even 7% — helped in part by election-related expenditures that added to the anchors of household consumption and an increase in state spending.

Eight major sub-sectors drove manufacturing growth in the second quarter, namely: basic metals; transport equipment; non-electrical machinery; rubber and plastic products; tobacco products; wood and wood products; beverages and printing. Also growing, albeit at a slower single-digit pace, were chemical products and food manufacturing.

As a result, VoPI last semester rose by 13.9%, accelerating from the 2.4% in 2015’s comparable six months.

“This signifies an improvement from the subdued growth in 2015 and reflects the sector’s strong production growth since the beginning of the year,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.

Capacity utilization — the extent by which industry resources are used to produce goods — averaged 83.5% for June, with 11 out of 20 major sectors operating at full capacity between 80% and 100%.

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Mr. Pernia, who is director-general of the National Economic and Development Authority (NEDA), however, said he expected growth in manufacturing to weaken by end-September due to the lean season, lower consumer demand and possible higher petroleum prices.

Sergio R. Ortiz-Luis, Jr., honorary chairman of the Philippine Chamber of Commerce and Industry (PCCI), said the recovery of manufacturing from its decline last year will soon be affected by the continued weakness of merchandise exports.

In a separate report, the PSA yesterday also said outbound shipments of Philippine goods fell 11.4% to $4.754 billion last June from $5.363 billion in the same month last year.

This marked the 15th straight month of contraction for exports, which rounded out the first half of the year with a drop of 7.5% year on year.

Manufactured exports, which comprised 86% of total outbound shipments, shrank by 9.5% year on year, with electronics — the Philippines’ top dollar-earning commodity at 51% of the total — contracting by 5.1% year on year.

Data e-mailed by the Semiconductor and Electronics Industries in the Philippines, Inc. show that medical/industrial instrumentation shipments declined by 77.99%, followed by office equipment, semiconductors, and automotive electronics.

“While the annual decline in Philippine exports in June 2016 was widely expected given the trend of weakening global demand, the contraction rate recorded for the month was unexpectedly too high,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines in an e-mail.

“Slowdown in foreign economies might be worse than previously estimated.”

Mr. Dumalagan found the plunge in exports to East Asia as a particular concern.

According to PSA data, exports to East Asia accounted for 51.3% of the total June exports, shrinking by 15.1% to $2.441 billion from the $2.875 billion a year ago.

“The drop in exports to East Asia is generally aligned with the unsteady consumer demand in China and Japan — countries that are aggressively battling domestic economic slowdown through a combination of fiscal and monetary stimulus,” Mr. Dumalagan said.

Exports to other Association of South East Asian Nations (ASEAN) members comprised 14.2% of the total and dropped 7.8% year on year.

“The continued decline in exports to ASEAN may indicate that the global slowdown has started to undermine consumer demand in economies closely surrounding the Philippines. While domestic demand in the Philippines currently remains robust, slowing demand in ASEAN could definitely pose a risk to the Philippines’ future well-being,” said Mr. Dumalagan.

Japan accounted for 20.6% of total merchandise exports in June, making it the top market for Philippine products. This was followed by the United States of America at 15.6%, Hong Kong at 12.4%, People’s Republic of China at 11.3% and Singapore at 6.6%.

“We must continue to improve our efforts in ensuring an enabling environment where industries can upgrade and improve their competitiveness,” NEDA’s Mr. Pernia said.

“This can be done by effectively linking the agriculture sector to the local and global industry supply chain,” he explained.

“With the slow global economic recovery, the country should identify non-traditional markets such as in Europe and within the ASEAN region, to reduce the external shocks from times of weak demand from traditional markets,” he added.

“We should also ensure the programmed spending on infrastructure projects — particularly those related to transportation and logistics — to support the country’s growing industries.” — Monica M. Hernandez and Lucia Edna P. de Guzman