Slower Demand From China and Japan

Philippines’ exports slowed from 7.1% yoy in October to 1.6% in November, sharply below market expectations of 9.0%. The unexpected sharp slowdown was attributed from the declines in both total agro products and manufacture goods, which fell sharply by 28.5% and 1.5% respectively. Exports of electronic products slowed from 13.7% yoy in October to 12.7% in November. However, in tandem with regional trend, demand for semiconductor goods remained strong, which rose by 17.8% in December (15.9% yoy in October). In terms of exports by destination, exports to China declined sharply from 6.9% yoy in October to -3.8% in November, which offset higher demand from US. Exports to US turned around from -2.6% yoy in October to 0.9% in November. However, exports to Japan declined further by 17.5% yoy in November, the fourth consecutive month of contraction. Meanwhile, exports to ASEAN region, as well as EU recorded healthy growth at 17.9% and 12.0% respectively.

On the imports front, growth increased significantly higher than market expectations, rising by 18.5% yoy in November (13.1% yoy in October), due to higher imports of capital goods during the month, which surged from 2.6% yoy in October to 16.1% in November. Likewise, imports of raw materials and intermediate goods also expanded steadily by 18.9% yoy in November. As growth in imports exceeded that of exports during the month, the country’s trade deficit widened further from US$2.8m in October to US$3.8m in November.

Philippines also released its latest inflation data, where headline inflation remained unchanged at 3.3% yoy in December. Cost of transport improved by 2.4% yoy in December (4.4%in November), and offset higher cost of food & non–alcoholic beverages during the month (3.5% vs 3.3% yoy in Oct). On average, inflation rose by 3.2% yoy in 2017, significantly higher as compared to 1.8% in 2016, mainly driven by higher cost of transport. For 2018, the central bank projected inflation rate to rise by an average of 3.4% in view of higher crude oil prices, weaker peso and an increase in domestic liquidity.

Separately, World Bank (WB), in its latest report, highlighted that regional East Asia and Pacific economic outlook will likely moderate slightly in 2018, due to possible gradual slowdown in China, though commodity exporters is expected to experience a cyclical rebound offsetting some of the drag from China. Accoridng to WB, risks has become more balanced despite still tilted towards the downside. Among others, World Bank also highlighted issues of elevated public and household debt (i.e. example in Thailand) and sizeable external financing (i.e. Indonesia) in the region. However, WB expects regional growth to remain healthy but slow moderately from 6.4% in 2017 to 6.2% projected for 2018.

Source: Affin Hwang Research - 12 Jan 2018