Rajiv Biswas, Asia Pacific Chief Economist, IHS Global Insight
Key Points:
- Latest trade data for November 2016 showed that the Philippines recorded a 7.5% year-on-year (y/y) decline in merchandise exports measured in USD terms in November 2016.
- For the first eleven months of calendar 2016, total merchandise exports from the Philippines contracted by 5.2% y/y in USD terms. A contributory factor to the overall weakness of exports measured in USD terms has been the depreciation of the peso against the USD during 2016.
- The weak November export figures reflected a sharp decline in electronics exports, which fell by 7.9% y/y.
- The weakness of the Philippines electronics sector exports is a key concern for the 2017 export outlook for the Philippines, since electronics accounted for around 51% of total Philippines exports of goods during the first eleven months of 2016. Total electronics exports in the first eleven months of 2016 were flat, up just 0.2% y/y.
Outlook for 2017
The weakness of Philippines electronics sector exports is of particular concern because the global electronics sector has shown a strong upturn during recent months. The most recent SIA (Semiconductors Industry Association) data showed that worldwide sales of semiconductors rose by 7.4% y/y in November 2016, in sharp contrast to the 9.7% decline in semiconductors exports from the Philippines in November 2016. For the first eleven months of 2016, exports of semiconductors from the Philippines contracted by 3.3% y/y.
The overall performance of manufacturing sector exports, which accounted for around 87% of total Philippines merchandise exports in the first eleven months of 2016, was also weak, contracting by 4.1% y/y for this period. While the weakness of electronics exports was a contributory factor to the overall weakness of manufacturing exports, other some other segments of manufacturing were also weak, with garments exports down 30.5% y/y in the first eleven months of 2016, while chemicals exports fell by 21.6%, while exports of machinery and transport equipment fell by 14.2%.
Despite the weakness of merchandise exports, the Philippines economy is still expected to show strong growth in 2017. After achieving five successive years of rapid economic growth, the Philippines is forecast to grow at around 6.3% in 2017, underpinned by robust domestic demand and the continued expansion of the IT-BPO industry. Although exports of goods have been weak, the overall exports of goods and services is being underpinned by the dynamic performance of the IT-BPO industry, with total exports of IT-BPO services projected to exceed worker remittances in 2017. Private consumption growth has remained strong, supported by large annual inward remittance flows from workers abroad, which are equivalent to around 10% of GDP. Worker remittances reached around USD29 billion in 2015, with a similar level of remittances estimated for 2016, as remittances totaling USD24.4 billion for the first ten months of 2016.