Weak external demand will likely continue to weigh on the country’s export growth amid lower growth forecasts among advanced economies and prolonged global technology downturn, according to the Philippines Economic Update recently released by the World Bank.
The report said growth among advanced economies, which include Japan and Germany, will be substantially lower at 1.6 percent in 2019 and 1.4 percent in 2020 and 2021.
This will soften the demand for Philippine goods as roughly 70 percent of the country’s exports are destined for high-income economies.
“In addition, a prolonged global technology downturn will hurt the Philippines’s export performance since electronics components constitute nearly half of the value of its exports,” it noted.
The Philippines’s merchandise export growth contracted by 0.8 percent year-on-year in the first half of 2019, reversing the 1.1-percent growth registered a year ago, on weak global demand and heightened trade tensions.
The contraction has been attributed to subdued global demand for electronics, the country’s main exports, and a slowdown in the electronics cycle.
The report added net services exports will be supported by the tourism and business-process outsourcing (BPO) sectors, although their growth will likely be modest given the weak external demand.
“Beyond external demand, export competitiveness remains a challenge, as the country has not progressed in diversifying its export goods,” it added.
The report said imports will likely intensify, outpacing export growth but at a slower pace compared to 2018 before eventually rising in 2020 to 2021, trailing domestic demand.
“Acceleration in the implementation of the government’s public infrastructure program will increase the import of capital goods while steady household demand will drive consumer goods imports,” it said.
Merchandise imports contracted by 1.0 percent year-on-year, a steep reversal compared to the 17.1-percent growth in the first half of 2018, driven by a fall in the import of raw materials and intermediate goods.
The report said the contraction is an indication of lackluster trading activity across the regional value chain, and a significant deceleration in imports of capital goods. It added global economic growth is expected to slow this year due to weakness in international trade and investment performance.
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