Philippines exports outlook dim

CEBU, Philippines — The local export industry might be in for another challenging year if the external environment continues to be discouraging to trade activity.

For one, the trade woes between the US and China have since crippled global trade growth as it triggered demand to cool down.

Last year, China and the US have levied billions of dollars in additional tariffs on each other amid the rise in trade protectionism.

And if the trade war between the world's biggest economies doesn't get resolved, it may affect further global trade as experts have warned.

Dim outlook

That apparently gives a dim outlook on the Philippines export sector, said Fred Escalona, executive director at the Philippine Exporters Confederation Inc. (Philexport) in Cebu.

"The general prediction of some experts is that 2019 will be the same as 2018 if the trade war between China and the US will persist," the export official told The FREEMAN.

Cebu, one of the country’s key exporting provinces, is seen to be affected by this, he said.

"Traditional exports from Cebu will experience another bear period if this happens," Escalona said.

However, he pointed out that if the US -China trade dispute is resolved, exports will experience a strong rebound this year.

"Hopefully, this will happen around the first quarter of 2019," he said.

Last year, the Philexport official noted that Cebu’s furniture, home decor and fashion jewelry exports have been greatly challenged.

"Food exports did well and we feel gains will extend to 2019," Escalona also said.

He cited that Cebu’s other exporting sectors such as industrial goods and those produced by its economic processing zones had seen mixed results in 2018 in terms of growth.

The export industry in Central Visayas, where Cebu is a major player, consists of various sectors namely electronics, industrial goods, furniture, seaweed, food, fashion accessories, gifts, toys and housewares, shellcraft, garments and medical tourism.

As of the first semester of 2018, the value of Central Visayas exports was 3.1 percent lower than in the same period in 2017, official data showed.

Impact

An April 2018 Bloomberg report quoted a study by Malaysia-based RHB Bank Bhd that cited the Philippines as the most at risk in Southeast Asia from the worsening trade conflict between China and the U.S.

About 16.9 percent of the Philippines’ shipments abroad are part of China’s value chain; goods that serve as inputs to China’s exports, according to RHB. That compares with 11.4 percent for Malaysia and just 2.2 percent for Vietnam.

As of September 2018, the Philippines' trade deficit widened as exports declined while imports surged, Philippine Statistics Authority data showed.

Total exports slipped 2.6 percent to $5.83 billion in September 2018, from $5.99 billion in the same month last year.

Meanwhile, imports surged 26.1 percent to $9.75 billion from $7.77 billion in 2017.

Total trade amounted to $15.58 billion, reflecting a 13.5 percent rise from last year.

The United States was still the country's biggest export market, accounting for 16.6 percent of the total shipments. Hong Kong came second, followed by Japan, China and Singapore.

China ranked first among the country's sources of imports, accounting for 19 percent of all imported items. Imports from China reached $1.86 billion or 38.5 percent higher from last year's figure.

South Korea was second as import source, followed by Japan, Indonesia and Thailand.

The depreciation of the peso has been blamed for the widening trade gap, alongside other external and domestic factors.

The Philippine has seen widening trade gaps since last year, rising its current account deficit and adding pressure on the peso, which has been languishing near 13-year lows against the US dollar.

The National Economic and Development Authority (NEDA) noted that purchases of capital goods grew by 25.4 percent in September. It added that capital goods accounted for 32.5 percent of imports from January to September.

“The growth in import of capital goods could indicate that firms are making long-term investments. The import of raw materials and intermediate goods could also indicate the vibrancy of the manufacturing sector as it is expected to sustain its positive growth in the remaining months of 2018,” economic planning chief Ernesto Pernia had said.

Forecasts

Downward adjustments in economic growth forecasts signal that global growth may have already peaked, Pernia had said, noting that global growth is seen to remain on the positive but to decelerate and be uneven across countries.

“Improving the export competitiveness of the country as stipulated in the Philippine Export Development Plan 2018-2022 becomes more urgent. The plan promotes, among others, an enabling environment for innovation to boost exports growth,” he said.

The chief economist said that given the weak global demand, the country must really pump up domestic demand.

"We need to encourage expansion of domestic firms, and also encourage foreign investment in domestic-market oriented firms,” Pernia said.

He added that removing cumbersome regulatory impediments through the effective implementation of the Ease of Doing Business Act and the enactment of the 11th Regular Foreign Investment Negative List (RFINL) will help in attracting more investments to the country.

“The recent RFINL is a step in the right direction of encouraging the expansion of domestic market-oriented firms. But we will require legislative action to further allow more foreign investments in other areas and activities, eventually creating more jobs and reducing imports,” Pernia stressed. (FREEMAN)