News Analysis: Downtrend in Philippine economic indicators may affect gov't annual growth forecast

The Philippine government's target of 7 percent to 8 percent gross domestic product (GDP) growth this year may no longer be attainable with the downtrend in the country 's major economic indicators.

On Tuesday, the Philippine Statistics Authority (PSA), a government agency, reported that the value of the country's merchandise exports slid for the third straight month in June due to weak global demand.

The PSA said that the country's merchandise exports dropped 3.3 percent to 5.28 billion U.S. dollars in June from 5.46 billion U.S. dollars a year ago.

The decline in the June exports was a reversal of the robust 21. 6 percent growth posted last year, although slower than the 17.4 percent year-on-year contraction in May, the PSA said.

Director General Arsenio Balisacan of the National Economic and Development Authority (NEDA), the country's top economic policy making body, said that the decline in exports reflects a still fragile global economy that is felt across the region.

"Most of the major economies in East and Southeast Asia also registered negative export performance in June, with only Vietnam and China in the positive territory," Balisacan said.

The NEDA said that agricultural exports were down sharply for the fifth straight month last June, slipping by 24.9 percent due to lower shipments of coconut, sugar products, fruits and vegetables.

In its monthly integrated survey of selected industries for June, the PSA also said that the manufacturing sector has contracted further by 3.6 percent from a 2 drop in May, a complete opposite from last year's double-digit growth of 12.7 percent for the same month.

Balisacan also attributed the decline in manufacturing output to the continued decrease in global demand and business interruptions during the rainy season. The NEDA chief, however, said that business expectations across sectors have remained optimistic.

He said that household consumption is expected to increase driven by sustained inflow of remittances and election-related spending. "This will then boost domestic demand and support growth in the manufacturing sector," Balisacan said.

Balisacan added that the country should invest in cost- effective and climate-smart technology that will reduce the vulnerability of locally-produced products from the seasonal changes in weather conditions.

The local currency, the Philippine peso, also dived to a five- year low on Tuesday following the weakening of China's yuan.

Following Tuesday's developments, the peso neared the 46 to 1 U. S. dollar level late in trading before closing at 45.93 from 45. 755 the day before.

"As expected, initial market reaction on the announcement of the yuan devaluation was weakness among the regional currencies, including the peso," Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said in a statement issued Tuesday.

Tetangco said that should the adjustment in the yuan become effective in supporting Chinese exports in the near term that could help sustain regional trade and in turn help support global growth.

He said that the peso would continue to be affected by external developments, but added that market participants were also expected to put weight on the country's sound macro fundamentals.

In the Philippines, exporters welcomed the depreciation of the peso, saying that this will benefit them.

In a recent interview, Sergio Ortiz-Luis, Jr., president of the Philippine Exporters Confederation Inc. (Philexport), said that a weaker peso could help the Philippines stay competitive against its export-oriented neighbors.

Ortiz-Luis pointed out that 11 top industries identified in the Philippine Export Development Plan (PEDP) 2014-2016 are expected to benefit from currency depreciation.

He identified these sectors as processed fish, crustaceans and mollusks, processed fruit and vegetables, vegetable and animal oils, carpentry and joinery, non-ferrous metals, electronic components and boards, computers and peripheral equipment, measuring and testing equipment, motor vehicle parts and information technology business process outsourcing (IT-BPO) services. Endi