THE Department of Trade and Industry (DTI) has tempered its growth forecast for exports this year to 2 percent on slower demand from traditional markets resulting from the trade conflict between the world’s largest economies.
As such, the DTI expects exports to hit a little over $72 billion by the end of the year, from $69.3 billion last year. Trade Secretary Ramon M. Lopez said the adjustment is necessary to reflect the global condition of reduced purchases from traditional markets, particularly from the United States and China, which are engaged in an on-and-off tariff war.
At the start of the year, the DTI set a growth target of 4 percent to 5 percent that should bring exports to over $76.5 billion by yeare-nd if accomplished.
“[A] 2-percent [growth] is reasonable. While our recent months’ export growth was aided by resilient demand from major markets, like China, Hong Kong, the US and the EU, the global slowdown may eventually temper overall pace of demand,” Lopez said in a text message.
“Thus, [we see] the need to continuously build [on] new markets, like Russia, India [and] Middle East,” he added.
Data from the Philippine Statistics Authority (PSA) showed shipments grew flat to $69.3 billion last year, from $68.71 billion in 2017. While the government attributed the decline to the collapse of the multilateral trading system, exporters blamed it on uncertainties brought about by proposed changes in the tax system, especially the plan to rationalize fiscal incentives.
In February, Lopez said the electronics supply chain in the region was “adversely affected” by the trade conflict, as the economies at war—the US and China—supposedly minimized their orders from their supplier countries, one of which is the Philippines.
Exports of electronic products, the country’s top export item, increased 4.9 percent to $38.32 billion last year, from $36.53 billion in 2017, according to official data. However, the figure was lower than the 6-percent growth projected by the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi).
Tax perks plan blamed
ON the other hand, Seipi President Danilo C. Lachica traced the lower-than-expected growth of exports to the government’s plan to rationalize incentives granted to economic zone firms.
In the semiconductor industry, for one, Lachica said firms opted not to expand operations and to hold on to their capital in anticipation of an overhaul in the menu of tax perks. He argued the trade conflict has little to no impact on shipments of electronic products, as demand for these items are always high no matter the global condition.
Last year, shipments of electronic products to China grew 6.17 percent to $4.99 billion, from $4.7 billion in 2017; while those to the US grew 16.93 percent to $5.13 billion, from $4.39 billion, in spite of the tariff war between the two economies.
According to Lachica, the Philippines lost over $1 billion in investments to the semiconductor industry due to the government’s move to rationalize incentives. He argued these investments could have opened up new operations and created additional jobs, which would result in better performance and higher exports from the industry.
Under the Tax Reform for Attracting Better and High Quality Opportunities (Trabaho) bill in the 17th Congress, corporate income tax will be reduced to 20 percent by 2029, from 30 percent at present, while incentives granted to economic zone locators will be rationalized, including the 5-percent tax on gross income paid in lieu of all local and national taxes.
In expanding exports to nontraditional markets, the DTI is flying exporters to trade shows and expositions to create linkages with foreign buyers. For one, the Philippines is set to participate in Expo 2020 Dubai that will run for six months and is expected to attract 25 million visits, of which 70 percent projected to come from outside host United Arab Emirates.
As of June, exports slipped nearly 1 percent to $34.11 billion, from $34.39 billion during the same period last year.