Philippine-assembled electronics—the country's top merchandise export—may be hurt by bigger Chinese production, the World Bank said.
In an Oct. 31 report, the Washington-based multilateral lender cited that the Philippines' semiconductor exports shrank 13.8 percent year-on-year in August, the fourth straight month of lower overseas shipments.
Electronics account for more than half of the country's total export revenues. As electronic and mineral products declined, overall August exports just managed to eke 0.3 percent year-on-year growth to $6.7 billion, the World Bank noted.
"The Philippines exports integrated circuits and processors mainly to China, which has increased domestic production of these components. This could threaten the competitive edge of the sector in the Philippines," the World Bank warned.
It did not help that also last August, "exports of copper metal and other minerals (largely nickel products) contracted due to weak demand from China," the lender added.
The Marcos Jr. administration's economic team targets goods exports to grow five percent this year, even as the value of end-August shipments abroad rose by only 2.3 percent year-on-year to $49.4 billion, the latest Philippine Statistics Authority (PSA) data showed.
While weakening external demand mainly from China may temper foreign trade, the World Bank remains bullish about domestic prospects amid sustained manufacturing expansion, declining joblessness and easing inflation.
In October, the World Bank raised its 2024 gross domestic product (GDP) growth forecast for the Philippines to six percent, now within the government's six- to seven-percent goal, from 5.8 percent previously.
For manufacturing, the World Bank said "forward-looking indicators signal improved production prospects in the near term," especially ahead of the Christmas holiday season.
The lender cited that the Philippines' purchasing managers' index (PMI) of 53.1 last September was the highest in Southeast Asia, where PMIs in neighboring countries slowed.
"Philippine firms saw a sharp uptick in new orders which boosted both hiring and purchasing activity despite declining international sales and rising supplier prices. Business confidence continued to improve on the back of strengthening domestic demand. Production prospects are also supported by increased imports," it noted.
The World Bank also pointed to additional employment in the accommodation and food services, public administration as well as trade sectors, which pulled the jobless rate down to four percent in August.
"Year-to-date underemployment at 12.2 percent is on track to reach its lowest annual average. More jobs, along with moderating inflation, are expected to bolster real incomes and domestic demand," the lender said.
Also, robust government spending on goods and services, which inched up to 22.6 percent of GDP as of end-September from 22.2 percent a year ago, is likewise supportive of economic growth, especially public investments, it added.
With September's over four-year-low headline inflation rate of 1.9 percent, the World Bank expects the Bangko Sentral ng Pilipinas (BSP) to "shift toward a more neutral monetary policy stance" following a cumulative 50 basis points (bps) in interest rate cuts since August.
However, the World Bank cautioned that "the prospect of slower rate cuts by the US Federal Reserve has strengthened the US dollar while heightening financial market volatility" in the Philippines.
"These developments have pared back gains in the Philippine Stock Exchange index (PSEi), from a 4.6-percent increase in the month leading to September to a 3.6-percent rise in the same period ending on Oct. 18. Meanwhile, the Philippine peso depreciated by 3.5 percent in the 30 days prior to Oct. 18 as a strong US dollar weighed on currencies across the region," it noted.
"The BSP Governor has noted concern over sharp movements in the exchange rate which could spur inflation. However, the BSP has held back from intervening in the market thus far," it added, referring to central bank chief Eli M. Remolona Jr.