Philippines: Solid Exports Encourage Upbeat Talk On Gdp but Weaker Electronics Shipments a Concern; Central Bank to Hold Rates While Php Steady and Inflation Subdued

Summary

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Government officials - most notably planning secretary Romulo Neri - are continuing to talk up prospects for 2006 GDP growth, largely on the basis of the much stronger than expected export performance through the first part of the year. Neri is now talking of "near 6%" GDP growth in Q2 and better than 5.5% for the full year. May export growth was a robust 17.3% on the year to the second highest monthly total ever, taking five-month export growth to 16%, double the 8% earlier forecast by the central bank for 2006, though like a number of official forecasts this is now overdue for a review. Despite this strength, there are some worries as electronics shipments, which dominate the export total, rose by just 9.9%, less than half the rate seen in April. If this flags a marked downtrend it is bad news, though so far most analysts do not see it that way. Export growth will slow anyway, partly on higher base year figures but the forward momentum does look sufficient to boost GDP growth. Meanwhile, the central bank is continuing to do its part by holding down interest rates, which were unchanged for the ninth consecutive month at the end June policy meeting. The decision was universally expected and then vindicated by a further fall in inflation, which dropped to a six-month low of 6.7% in June, cutting H1 inflation to 7.1% and - as senior officials flagged over the weekend - warranting a cut in the official 7.3-7.9% forecast for 2006, possibly towards 7%, albeit there are still some potential inflationary threats. The interest rate decision has also been vindicated by a modest recovery in the PHP. So long as these conditions - restrained inflation and no overt PHP weakness - continue to hold, then the bank is unlikely to raise rates even though differentials with US rates are continuing to narrow.

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Philippines: Solid Exports Encourage Upbeat Talk On Gdp but Weaker Electronics Shipments a Concern; Central Bank to Hold Rates While Php Steady and Inflation Subdued

Neri looking for 6% GDP growth in Q2 as exports continue to hold up

Socio-economic planning secretary Romulo Neri is continuing to talk up prospects for GDP growth this year despite spending constraints that are thwarting plans to give the economy a boost. On 3 July he said "I'm hoping for near 6.0% [GDP growth] in the second quarter" after 5.5% in Q1. This is in line with his 21 June comment that "We have a very good chance of reaching or even exceeding 5.5%" growth for the full year, whereas many independent forecasts suggested that the Philippines would fall short of its 5.5-6.2% target, set when spending prospects looked better, and some had even talked of its falling below last year's actual growth of 5.0%. The Q2 GDP growth announcement is not due until late August and there are not too many useful monthly indicators to assess performance in the interim but central to Neri's argument is that - alo...

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