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By Darwin G. Amojelar, Reporter
THE economic slowdown of the United States,
which until recently was the Philippines’ largest market, will
sharply spoil the country’s export industry as well as the
domestic economy this year, experts told The Manila Times.
The slowdown, which started last year and is now
being called a recession by some, brought down Philippine exports to
the US in 2007 to only $8.57 billion, which was only 17.08 percent
of our total export market, lower than the 18.33-percent share in
2006 and 17.95 percent in 2005.
In 2007, the country’s total export earnings
grew slightly by 6.05 percent to $50.27 billion from $47.41 billion
in 2006. Experts say the much-reduced growth—the government’s
stated target was 10 percent—was the result of the US slowdown
(which also made our other markets’ imports from us go down) and
the sharp rise of the value of the peso which made our products cost
more to overseas buyers.
This year the government expects exports to grow
by 8 percent over 2007. Experts are pessimistic.
George Worthington, chief regional economist at
Thomson IFR, sees Philippine exports to the US actually falling this
year. This will then dampen overall economic growth, as measured by
the gross domestic product (GDP).
Yet, Worthington in effect says there’s a rosy
side to this. “With virtually all of [RP] GDP growth in the last
two quarters coming from domestic demand, the economy should remain
reasonably resilient even with net exports subtracting from overall
growth.”
“As long as domestic demand remains firm,
then, the US recession should only have a modest impact on
[Philippine] growth,” he added.
Worthington expects Philippine exports to grow
between 5 percent and 7 percent this year.
“I think the government’s target will not be
met this year in light of the recession in the US and weakness in
Japan,” he said.
China slowdown more damaging
He noted that Philippine exports to Japan and
Taiwan fell last year. This means, he says, that the weak export
performance is more an issue of product rather than demand.
“Exports to China also fell in 2007 but a
double-digit surge in those to Hong Kong saw overall [RP] exports to
China plus Hong Kong shot up 14.1 percent in 2007, which provided
virtually all of the overall increase in Philippine export
performance,” he pointed out.
Then he gave a worrisome insight: “That
suggests that a recession in China would be much more damaging to
the Philippines than one in the US.” This is worrisome because
America is China’s biggest market and China is now experiencing
difficulties in selling abroad.
Peter Lee U, economist at the University of Asia
and the Pacific, agrees with Worthington.
“While the US isn’t the only major trading
partner of the Philippines nowadays, nevertheless the US economy
still influences greatly the direction of the world economy. If the
US heads into recession, global economic growth, while not
necessarily going into a recession, will tilt that way too. It would
then reduce or slow down our exports [to other countries depending
on US sales],” U said.
Benjamin Diokno, economics professor at the
University of the Philippines and former Budget Secretary of the
Estrada administration said, the expected slump in exports this year
will lead to a significant slowdown in the local economy.
Diokno projects export growth this year to lower
than 6 percent. “With export growth of only 6 percent, that’s a
significant slowdown for the Philippine economy because we used to
grow by double digits for exports,” he said.
No investment in production
Worthington said Philippine exports last year
rose by 6 percent while other countries in the region had
double-digit gains. He says this is because our exporters are “not
terribly competitive, but I wouldn’t be able to quantify it
precisely.”
“This lack of competitiveness is due to the
lack of investment in productive facilities over the past several
years that have kept the economy from moving up the value chain,”
he explained. The Philippines has ended up “producing more
commoditized exports where it can only compete on price.”
Lack of investment in the export sector is the
major factor that hampers the country’s export competitiveness.
“An uncertain investment climate, political
uncertainty, security concerns, infrastructure issues [think Ninoy
Aquino International Airport Terminal 3], etcetera. All these are
encouraging foreign investment to go elsewhere,” he said.
Peso strength not a big factor
Worthington noted that the strength of the peso
is not a significant factor in decelerating Philippine export
performance.
“It is comfortable to blame the strong
currency but currencies of the countries in the region have been
rising on the back of the weakening dollar and their exports have
remained generally strong. I think the major factor is the growing
impact of the lack of investment in recent years that will prevent a
stronger export performance in future,” Worthington said.
He said the country’s gross fixed capital
formation has fallen as a share of GDP from around 25 percent in the
1990s to around 17 percent in the last few years, far below the
other countries in the region.
Power costs and labor productivity
Professor U also said the lack of infrastructure
and the associated higher cost of doing business—like high
electricity and labor costs—also affect the country’s
competitiveness.
The UA&P economist said the government
should do something to reduce high power costs.
He said it is politically very hard to reduce
labor cost. So what the government should address is how to improve
the productivity of Philippine workers.
“In the long term that can be achieved with
increased investments in education and health. In the short term
perhaps we can attract more investments [whether local or foreign]
in labor productivity-enhancing capital and equipment,” U said.
Myrna Asuncion, acting director of the NEDA’s
National Planning and Policy Staff said as US income plummets,
demand for the country’s export will also move downward.
Electronics, garment exports to USA
Asuncion said that based on export linkages, the
brunt of the slowdown in the US economy will be felt by the
electronics and garments sectors.
The US corners about 14 percent of the
country’s electronic products and 79 percent of garments exports.
Despite this, Asuncion said, some economists
claim that overall, the Philippines as well as China and other
emerging countries are sufficiently decoupled from the US economy.
“The other side of the debate claims that with
our interconnection in the global production lines, especially in
the production of electronic products, we will be significantly
affected. That is, our export to other countries exporting to the
US, is indirectly dependent on the US economy. The impact, however,
should still be lighter compared to 10 years ago when our trade was
highly concentrated in the US,” she said.
Moreover, the NEDA official said the weakness of
the US economy also translates to a weak dollar vis-ŕ-vis a lot of
countries, including the Philippines.
“The stronger peso undermines the
competitiveness of the exports sector,” Asuncion said.
Based on the NEDA Quarterly Macroeconomic Model,
Asuncion estimated that for every 1-percent appreciation of the
peso, exports growth declines by 0.7 percentage points.
A World Bank estimate showed that a 1 percentage
point increase in the real exchange rate can be expected to lead to
a decline in overall exports of 0.22 percentage points and a decline
in manufacturing and high-tech exports of about 0.35 percentage
points.
Acting Socioeconomic Planning Secretary Augusto
B. Santos, echoed economists’ view that to be able to meet the
target for the year and over the medium-term amid the appreciating
peso and lower United States economic growth, efforts should be
directed towards strengthening export competitiveness in the areas
of infrastructure, labor productivity and reducing power costs
through greater competition.
“More important, exporters should start
looking at trade opportunities with consumer markets outside the
US,” he added.
Less OFW remittances and tourism revenues
Asuncion noted that besides lower export
earnings, the US slowdown could reduce OFW remittances and the
tourism industry’s revenues.
“Recent data from BSP show the US accounting
for the biggest share, with 51 percent [of all OFW remittances].
Nonetheless, this could very well be overstated given that a
significant amount of remittance originated not from the US but was
only coursed through US banks. In terms of labor deployment, latest
data show that about one-third of our land-based workers are in the
US,” she said.
In addition, the NEDA official said the US
slowdown may have an adverse effect on tourism, given that the US is
the second-highest source of tourists and is one of the
Philippines’ core tourism markets. The others are Korea, China,
and Japan.
She said the Department of Tourism is pursuing
niche marketing campaigns focusing on ecotourism to attract tourists
from Australia, Germany, Russia and Canada.
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