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Strong peso seen a threat to manufacturing sector

/ 07:58 PM February 18, 2013

The appreciating peso poses a threat to the recovery of the manufacturing sector and the jobs it generates, private economists said.

The National Statistics Office’s recent report that manufacturing output grew at a faster pace in 2012 (7.2 percent) than the previous year’s rate of 1.1 percent indicated recovery in the sector, Dr. Victor Villegas of the University of Asia and the Pacific said in a text message.

“This is a recovery. It can be sustained at least for another year or two, since government infrastructure spending and private construction of residences will remain robust, and the election spending will provide an additional boost. But the appreciation of the peso constitutes a grave threat to longer term sustainability,” Villegas said.


As for job creation, which is the reason why government aims to encourage expansion in manufacturing, tourism, agribusiness and other labor-intensive sectors, Villegas said massive job creation can be achieved “only by a depreciating peso, not an appreciating one.”

The World Bank estimates the Philippines needs some 3.5 million jobs a year to sustain growth and make it inclusive—much more than the 1 million jobs per year that the government seeks.

Dr. Benjamin Diokno of the UP School of Economics said separately that the biggest threat to Philippine manufacturing was the continuing strength of the peso because it makes exports more costly (less competitive) and encourages imports.

Also, with a still uncertain world economy (recession in Europe and lower-than-normal growth in the United States) plus strained relations with ever-growing China, Diokno said he expected manufacturing to grow at slightly less than 5 percent in 2013. “Slower exports and higher imports have the effect of reducing domestic production,” Diokno said.

Among manufacturing sub-sectors, NSO data said the food manufacturing index grew 14.1 percent in 2012 from its 13.6 percent slump in 2011, suggesting a recovery in food production. The tobacco industry’s slump got worse with a 21.5-percent contraction in 2012 from the 20.5-percent drop in 2011.

Base metals production fell further with a 9.2-percent contraction in 2012 from a drop of 9.7 percent in 2011. Machinery grew by 8.1 percent in 2012 from a sharp fall in 2011 (32.3 percent).

Gainers for the full year included apparel, furniture and transport. Footwear and wearing apparel output expansion accelerated to 91.5 percent in 2012 from 1.7 percent growth in 2011. Furniture and fixtures was up by 54.7 percent in 2012 from 105.6 percent in 2011. The transport sector showed recovery signs with a 26.6-percent growth in 2012 from the 8.4-percent fall in 2011. The index was sharply down by 24.6 percent in December, which may indicate overproduction in earlier months.

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TAGS: Business, manufacturing sector, strong peso
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