PH faces economic headwinds, gov’t warned

SLOWING remittances and weakness in the country’s manufacturing sector may be early signs of a cycle that may lead to the further moderation of economic growth later this year, bank analysts said this week.

This heightens the need for the government to pick up the slack and get out of its spending rut to provide stimulus to the economy by rolling out projects at a faster pace.

“Execution of the fiscal program is quite critical. A poor report would raise concerns about the economy’s growth prospects,” Joey Cuyegkeng, economist at ING Bank’s Manila office, said in a note this week.

Government spending data is set to be released this week. ING said weak spending in April might mean a continued deceleration in economic growth.

In January to March, the economy grew by 5.2 percent, falling short of the government’s target of at least 7 percent.

Two main pillars of growth have shown weakness as of late. Remittances from overseas Filipino workers grew by just 5.1 percent this year. Although this was within government forecasts, this was slower than the 11.3-percent expansion in March.

Manufacturing numbers have been more dismal, government data showed. April exports disappointed with a 4.1-percent contraction rather than the consensus forecast of an 8-percent gain.

Non-electronic exports dropped 18 percent, which was more than enough to offset the 22-percent gain in electronics exports.

“Aside from remittances and the impact on consumption, the recent slowing in the export data raises concerns,” JP Morgan said in a separate note.

“If the slowing persists, this could spillover into softer fixed investment into plant and equipment,” said Sin Ben Ong, JP Morgan’s economist for Southeast Asia.

He said so-called translation effects had been a factor in slowing remittances inflows in dollar terms, since overseas workers are likely compensated in local currency of their place of employment and not necessarily in US dollars. This means remittances seem lower because the total is reported in terms of the US currency, which has been strengthening since the start of the year.

The peso’s relative strength, meanwhile, could erode the purchasing power of families that receive remittances. A stronger peso means families get less in local currency for every dollar they receive from overseas.