Freeman Cebu Business

Mixed bag for recovering Philippine trade sector

C&C VIEWS - Ed Limtingco - The Freeman

According to the Institute for Development and Econometric Analysis, Inc. (IDEA) latest Economic Monitor, from 5.7 percent in the first quarter, Philippine gross domestic product growth accelerated to 6.4 percent in the second quarter of this year. The uptick in the economy’s performance was supported by an improvement in the country’s trade performance as the trade deficit decreased by $2.3 billion from the previous quarter. This represents a decline of 42.0 percent relative to the first quarter and 25.0 percent compared to the same period last year, driven by a $1.5-billion increase in total exports even as total imports shrank by $782 million.

The latest trade deficit figure at $3.1 billion in the second quarter is the lowest since 2008. It is also much smaller than the $5.4-billion and $4.1-billion figures for the first quarter of 2014 and the second quarter of 2013, respectively. 

According to the same published report, the domestic economic story appears, for the moment, to be taking a backseat to developments in the global economy and the international financial system. While the Philippines macroeconomic fundamentals remain sound, the direction of key financial indicators seems to be increasingly driven by external developments. The BSP policy tightening actions have been motivated by concerns of being left behind the curve as major economies around the world, notably the United States, transition towards policy normalization. This has led to a general increase in domestic interest rates. But while higher interest rates should help firm up the domestic currency, the peso has shown some weakening against the dollar. Again, however, the forces driving this can be traced to the resurgence of the dollar, thereby capital that had erstwhile sought safe havens abroad such as in emerging markets like the Philippines. The winds of change are blowing once more in the world economy. Depending on how economic managers respond, the country’s economic fortunes of will rise or fall with the turning of the tides.

Likewise per IDEA, the rise in consumer prices moderated in September, slowing to 4.4 percent vis-a-vis the 4.9-percent rate in August and bringing the year-to-date average at 4.4 percent. This was mainly due to lower food, electricity, and fuel prices during the period. Food prices, however, remain elevated and core inflation was steady at 3.4 percent—the highest this year. These suggest that the inflation situation continues to bear watching, although the general consensus is that prices will soften in the remaining months of the year.

Lastly, it was also reported that he increasing trend in Treasury-bill (T-bill) rates remained intact in September as the average rate for all maturities rose to 1.6 percent from 1.53 percent the previous month. The 91-day T-bill fetched a rate of 1.2 percent from 1.4 percent, but all other tenors inched up. Rates for the 181-day and 364-day T-bills rose to 1.7 and 1.9 percent, respectively. Previous and current monetary tightening actions are seen to exert further upward pressure on yields, according to the researchers of IDEA.

Economic Monitor is IDEA’s monthly publication that provides a summary of monitored news and indicators of the economy released in the preceding month.


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