Global Semiconductor Sales Have Been Contracting in Recent Months

Export growth in the Philippines expanded steadily by 1% yoy in May for the second consecutive month, higher than market expectations of -0.8%. However, imports growth declined for the second straight month by 5.4% yoy from -1.9% in April. As a result, the trade deficit narrowed to US$3.3bn in May compared to a deficit of US$3.5bn in April. Continued expansion of export growth was led by higher demand for electronic products, which rose by 6.3% yoy (2.9% in April), its strongest growth since August 2018. In particular, demand for semiconductors, which is the country’s top export, increased by 4.5% yoy in May (1.2% in April). When compared to other Asean countries in US Dollar terms, Philippines is the only country in the region, where export growth has rebounded and remained in the positive trajectory in May. Going forward, we believe there is a possibility of Philippines’ export growth being weighed down by the recent cyclical downturn in global semiconductor sales. Since the start of the year, global semiconductor sales have been contracting and in May 2019, sales declined further by 14.6% yoy (-13.7% in April). According to Semiconductor Equipment & Materials International (SEMI), global sales of semiconductor manufacturing equipment by original equipment manufacturers are projected to decline by 18.4% yoy in 2019 to US$52.7bn from US$64.5bn in 2018.

Separately, in Indonesia, retail sales expanded by 7.7% yoy in May compared to 6.7% in April, according to Bank Indonesia’s Retail Sales Survey. This was the highest growth since March 2019 and was mainly driven by higher demand seen during Ramadan. In May, higher sales came from food, drinks, and tobacco (6.4%) and apparel (43.9%). However, according to the survey, retail sales momentum is not anticipated to hold up. The retail sales in June is projected to slow by 2.2% yoy despite Eid al-Fitr occurring in the same month. The lower predicted retail sales in June by the survey may suggest that the demand-pull inflation will likely ease in June. Therefore, we believe this may lead to some downward pressure on headline inflation which remained at its quickest pace since April 2018 at 3.3% yoy for the second consecutive month in June.

Furthermore, Indonesia’s consumer confidence in June fell to 126.4 from a record high of 128.2 in May, making this its weakest reading since March 2019. The dip in confidence was mainly due to less positive economic outlook, lower income expectations for the next six months as well as lower expectations of job availability. Despite the drop in consumer confidence, we expect sentiment to be supported by the some recent incentives introduced by the Indonesian government in order to boost investment, create jobs and drive economic growth (i.e. taxpayers who conduct R&D in Indonesia could obtain a deduction in gross income as high as 300% of the total cost incurred).

Source: Affin Hwang Research - 12 Jul 2019