Brexit seen to take toll on Philippine exports

MANILA, Philippines - Exports may become weaker throughout the year because of fallout from the UK’s exit from the European Union (EU), putting the high end of this year’s growth target out of reach.

“The country, owing to its good fundamentals is going to sail all right, Brexit headwinds notwithstanding,” Finance Undersecretary and chief economist Gil Beltran said in an economic bulletin.

“The higher end of the targeted growth rate may, however, be difficult to attain because external volatilities will delay the recovery of merchandise exports,” he added.

Growth, as measured by gross domestic product, is targeted between 6.8 and 7.8 percent this year, although the new administration said it might lower it.

Nevertheless, both outgoing and incoming economic managers earlier said macroeconomic assumptions are unlikely to be affected by Brexit.

“The immediate effect of the referendum is added uncertainty, compounded by the political stability of the UK causing more volatility in the financial and currency markets,” Beltran said.

“Yet, the longer-term horizon is of greater importance for the Philippines,” he stressed.

Beltran said the economy has enough funds to course through the uncertainty, pointing to sustained current account surplus as well as the government’s healthy balance sheet.

The government achieved a P55-billion budget surplus in April that trimmed the year-to-date deficit to P57.5 billion. A surplus means more revenues were earned than spent.

“The country’s external position is also strong, with robust (overseas Filipino) remittances and (business process outsourcing) revenues only a minimal portion of which originate from UK,” he said.

Emilio Neri Jr., lead economist at Bank of the Philippine Islands, echoed Beltran and said local liquidity is “just too big.”

He said this in relation to the latest auction of the central bank’s term deposit facility where P153.34 billion in tenders were made against a combined P30-billion offer.

Broken down, P61.38 billion was lodged for seven-day parking, while a higher P91.96 billion was filed for 28-day instruments.

The BSP awarded P10 billion and P20 billion for seven and 28-day periods, respectively, at a rate of 2.5 percent. This was the fourth week of the facility.

“Liquidity is just too big in relation to what the BSP is offering that external factors were probably not enough to affect the market’s desire to deploy funds,” Neri said by phone.

However, Neri aid tenders may taper off in the coming weeks even after the central bank decided to increase its award volume for 28-day papers to P40 billion by the next quarter.

“Remember that when this facility was launched, others like the special deposit accounts were closed. So in effect, what you are seeing now are just those funds migrating to another avenue,” he said.