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Exports to hurt growth in Q2

Weak exports are expected to drag down gross domestic product growth in the second quarter, Economic Planning Secretary Arsenio Balisacan said Wednesday.

Data showed merchandise exports sank 4.1 percent year-on-year in April and 17.4 percent in May, amid sluggish global demand.

Balisacan 

Balisacan said he was hoping exports would recover in June to help improve the second-quarter exports data.

“In the first two months of the second quarter, exports growth was negative. We were hoping that June exports would be better,” Balisacan said at the sidelines of the signing of the joint memorandum circular on national evaluation policy framework that calls for the purposive conduct of independent evaluation of government programs and projects. 

Balisacan said the downtrend in exports was also observed in other countries.  “We have some challenges because of exports. Globally, exports have been less robust than what we expected,” he said.

He said despite the drop in merchandise exports, services exports such as business process outsourcing revenues and tourism receipts continued to grow.  “That’s growing faster in recent years than merchandise exports,” he said.

GDP grew 5.2 percent in the first quarter, the slowest in nearly three years, because of sluggish government spending.  This was below the government’s full-year target range of 7 percent to 8 percent.

Balisacan said the slower inflation rate could offset the weak exports this year.  Data released by the Philippine Statistics Authority showed inflation hit its lowest rate of 1.2 percent in over two decades.

“Oil prices are low, consumer confidence is still high. So that can drive consumption growth. We expect investment... And the government spending, we hope that it’s really much better in the second quarter,” said Balisacan.

Balisacan said given the uncertainties in the global market, it would be a bigger challenge to hit even the low end of the 7 percent to 8 percent growth target set by the government this year.

Meanwhile, debt watcher Standard & Poor’s Ratings Services warned that its current investment grade rating for the Philippines might be downgraded if the government failed to sustain reforms.

“We may lower the ratings if the administration’s reform agenda stalls…,” S&P said in a regional report on Asia-Pacific sovereign rating trends mid-year 2015.

S&P said it might also lower the ratings “if a successor administration reverses recent gains in the Philippines’ fiscal or external positions.” The next presidential elections will happen in 2016.

S&P upgraded the Philippines rating to a notch above investment grade (BBB) with a stable outlook on May 8, 2014.

S&P said it might raise the ratings “if further institutional and structural reforms boost investment and economic growth prospects...or if changes in governance and the policy environment lead us to a better assessment of institutional and governance effectiveness.”

“We consider this scenario unlikely over the next year, however,” it said.

It said the Philippines’ stable outlook balanced the country’s strong external position, which featured rising foreign exchange reserves and low external debt, against low income and developing institutional and governance framework over the next 18 months.

The S&P report also showed the Philippines had a neutral rating with respect to institutional assessment; economic assessment, weakness; external assessment, strength; fiscal assessment, budget performance, neutral; fiscal assessment, debt, neutral; and monetary assessment, neutral.

Earlier this month, S&P reduced the Philippines’ growth outlook this year and next due to risks emanating within and outside the region but its expansion will be enough to outperform its neighboring countries.

S&P said the Philippines was expected to grow by 6 percent in 2015 and 2016, lower than previous estimates of 6.2 percent and 6.4 percent, respectively.

S&P said inflation rate this year was expected to average 2.1 percent, slightly above the lower bound of the government’s target range of 2 percent to 4 percent for 2015. However, inflation was seen to accelerate in 3.9 percent in 2016 and 4 percent in 2017.

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