Export drop imperils 8% yearend growth target

By Luis Leoncio

Export receipts have declined heightening fears the country would not be able to achieve its target growth rate of between 7 percent and 8 percent this year.

The government reported that exports remained weak, with the April figures showing that export receipts shrank 4.1 percent following a modest rebound of 2.1 percent the month before.

This decline in exports, plus what has been dubbed as mismanagement in the budget that led to a disastrously low 5.2-percent growth in the first quarter, has put a lid on the government’s play to hit a 7-percent to 8-percent growth.

The National Economic and Development Authority (Neda) blamed the lower export earnings from petroleum, mineral and agro-based products for the slowdown.

The Philippine Statistics Authority (PSA) reported that the total value of outward shipments fell to $4.4 billion in April 2015, from $4.6 billion in the same period last year.

Prof. Benjamin Diokno, of the University of the Philippines School of Economics (UPSE), said exports for the first trimester (January to April 2015) shrank by 1.2 percent, mainly due to the weaker global economy. The weak factory output is also related to slower world economy.

“These are signs that that the official growth target is in jeopardy,” Diokno added.

Manufacturing sector output increased only slightly during the same month, with the PSA’s Monthly Integrated Survey of Selected Industries (Missi) showing the Volume of Production Index (VoPI) growing a negligible 1.4 percent from a 16.1-percent expansion the previous month and a 10.8-percent growth a year ago.

But Socioeconomic Planning Secretary Arsenio Balisacan, who is also Neda director-general, said that despite the April 2015 numbers, “investors remain confident of the growth prospects.”

Balisacan attributed the decline in export receipts to the fragile global economic conditions, noting that most trade-oriented economies in East and Southeast Asia also registered negative export performance in April 2015, with only Vietnam in the positive territory.

The country’s outbound shipment of petroleum products amounted to $2.7 million in April 2015, a sharp decline of 94.8 percent from $52 million recorded in April 2014.

“Falling crude oil prices in the international market continue to partly affect the country’s exports as reflected in the year-on-year declines in the volume of petroleum exports to Singapore, Malaysia, Thailand and Cambodia,” Balisacan said.

Exports of mineral products decreased by 18.2 percent in April 2015 to $260.3 million from $318 million in April 2014, due to lower earnings from copper concentrates and iron ore agglomerates.

Also, total exports revenue from agro-based products dropped by 33.1 percent to $231 million in April 2015, from $345 million in April 2014 as sharp contractions were recorded in fruits & vegetables.

“The production of agro-based commodities will continue to feel the impact of prolonged drought in tandem with the occurrence of stronger and erratic typhoons. This will ultimately affect production,” Balisacan said.

He urged the government to fasttrack and strengthen initiatives, such as infrastructure support, hybrid seeds and advanced weather-sensing facilities, to lessen the impact of extreme weather conditions on agriculture.

He said the country’s export sector remained vulnerable to declining demand from major trading partners. The softening of economic activity in China as well as the still-fragile economic growth of Japan remain a downside risk for the Philippine export sector.

“To counter the weak demand from our major markets, the government should maximize existing trade agreements, especially with emerging economies benefitting from the low oil price environment. Also, this shows the importance of restoring traction in government spending,” Balisacan said.

Inflow of capital is also discouraging as foreign direct investments (FDI) yielded net inflows of $229 million last March, which was  a 54.6-percent decline from the $506 million posted a year ago.

According to the Bangko Sentral ng Pilipinas (BSP), net inflows across all FDI components were lower, with foreign investments in debt instruments issued by local affiliates (or intercompany borrowings) registering $123 million net inflows.

Equity capital investments also posted net inflows of $50 million, which was the result of gross equity capital placements of $85 million in March largely from the United States, Japan, Singapore, France and Germany.

The capital infusions were channeled mainly to real estate, electricity, gas, steam and air-conditioning supply, manufacturing, administrative and support service, and financial and insurance activities.

FDI registered net inflows of $851 million for the first quarter, which was also lower by 50.4 percent compared to the $1.7-billion net inflows posted in the same period last year.

Government data also showed committed projects approved in the first quarter by the seven investment promotion agencies (IPAs) amounted to P21.8 billion—41.7 percent lower than the P37.4 billion approved in the same period last year.

But Balisacan remains hopeful of a turnaround in the manufacturing sector as more foreign companies relocate to the country to take advantage of the relatively cheap Filipino labor.

“In addition to the supply of skilled labor, some firms also want to maximize duty-free benefits in the Philippines under the European Union’s Generalized Scheme of Preferences Plus,” he added.

Average capacity utilization in the manufacturing sector remained at 83.2 percent during the period. The basic metals subsector had the highest average capacity utilization at 88.8 percent in April 2015, slightly higher than the 88.5 percent last year.

“Since basic metals are among the backbone industries with high forward linkages, its high average capacity utilization will enhance firms’ capacity to respond to the increasing demand of other subsectors, particularly the rapid growth in private construction and the expected realization of government infrastructure projects,” Balisacan said.

Among local firms, 26.4 percent are operating at full capacity, 55.3 percent at 70 percent to 89 percent and 18.3 percent operating at below 70 percent capacity.

The chemicals and tobacco industry sustained their strength for the period, countering the slowdown in the production of food and petroleum products. Also, leather, printing, basic metals, and machinery (except electrical) registered double-digit growth.

But Balisacan said the adverse effects of El Niño and uncertainties in the global market still pose significant risks.

He also reiterated the need for the government to continuously undertake efforts at improving business climate, address long-standing power-security issues, and diversify the country’s range of products.