Philippines' May exports up, give BSP more room to tighten

Posted at 07/10/2014 9:44 AM | Updated as of 07/10/2014 11:46 AM

MANILA (UPDATE) - Philippine exports reached their highest value in at least 17 months in May, supporting forecasts of robust growth for one of Southeast Asia's fastest growing economies and giving the central bank more leeway to tighten policy to dampen inflation.

Exports in May rose 6.9 percent from a year earlier, with shipments for the month reaching $5.48 billion, the highest value since January 2013, the statistics office said on Thursday, citing available data.

The statistics office revised the trade data series for the whole of 2013, but has yet to release revisions for years 2012 and earlier.

Shipments to Japan, the country's top export destination, were up 6.1 percent in May from a year earlier, while those to China and United States climbed 51.3 percent and 9.2 percent, respectively.

Overall exports grew 5.8 percent in January to May from the same period a year earlier.

Analysts said the better-than-expected export performance bodes well for economic growth in the second quarter, after growth in the first three months of the year missed expectations.

"The export numbers will give the central bank even more confidence to tighten monetary policy," said Emilio Neri, economist at Bank of the Philippine Islands.

"They will have a freer hand to pursue that mandate since the external side is showing signs of recovery," said Neri, adding the central bank could move as early as this month.

Bangko Sentral ng Pilipinas Governor Amando Tetangco said on Wednesday the central bank will not hesitate to tweak monetary policy to ensure inflation remains within target. It next meets on July 31 to review policy.

The BSP has taken several modest steps to tighten liquidity and tamp down price pressures so far this year, but some economists believe its next step will be more forceful: a hike in its policy rate from the current record low of 3.5 percent.

Growth in May exports was led by shipments of mineral products, coconut oil, metal components, woodcrafts and furniture, machinery and transport equipment, which helped offset a 1.6 percent annual decline in electronics shipments.

The country provides about 10 percent of the world's semiconductor manufacturing services, including for mobile phone chips and micro processors.

"In the first few months of this year, the story for the Philippines is that it has been outperforming its regional peers as far as exports are concerned, benefiting from improved external demand more than other countries," said Euben Paracuelles, economist at Nomura in Singapore.

"The electronics sector is important. It has experienced a soft patch, but again external demand still seems to be stronger and that should bode well for the sector."

The electronics industry group has said it was sticking to its 5 percent growth for the sector this year, with expectations of a pick-up in global demand.

The economy unexpectedly grew at its slowest pace in two years to 5.7 percent in the first quarter, hurt by the impact of last year's super typhoon Haiyan. Manila is targeting growth of 6.5-7.5 percent this year.

The government kept its 2014 export growth estimate at 6 percent, but lifted its import projection to 9 percent from 6 percent on anticipation of high inflows of construction materials for rebuilding after the typhoon.

Annual inflation in the Philippines averaged 4.2 percent in the first half of the year, above the midpoint of the central bank's 3-5 percent target for the year on the back of rising food and transport costs.