PH to sustain manufacturing growth due to weak peso – report

Manufacturing growth in the Philippines is expected to be sustained in the near to medium term partly due to a weak peso, London-based economic research firm Capital Economics said.

“A key factor behind the recent strength of the economy in the Philippines has been the manufacturing sector. Last year, manufacturing output grew by an impressive 8.6 percent, outperforming other parts of the region,” Capital Economics said in a report.

The report of senior Asia economist Gareth Leather is titled “Philippines: Will manufacturing continue to outperform?” It cited Thomson Reuters and its own data on manufacturing production in the emerging Asian region.

For Capital Economics, “the near-term prospects for the country’s manufacturing sector look good.”

“Low interest rates, strong global demand, and buoyant confidence levels should all help to support manufacturing growth for the next few quarters,” Capital Economics said.

As for the medium term, Capital Economics said low labor costs in the Philippines augur well to the domestic manufacturing sector.

“With low-end labor-intensive manufacturing leaving China in search of cheaper places elsewhere, the Philippines should benefit,” it said.

“What’s more, whereas large parts of Asia (have) to worry about shrinking work forces, the Philippines is expected to see a sharp rise in the number of people of working age. This should allow manufacturing employment to rise without putting too much upward pressure on wages,” it added.

Also, Capital Economics said that the weak peso will be helpful, specifically for exporters.

“While most Asian currencies have appreciated against the US dollar since the start of last year, the peso is one of the few emerging market currencies to have lost ground against the greenback. In trade-weighted terms, the peso has lost 11 percent of its value since the start of 2017, while the real-effective exchange rate (REER, a trade-weighted index that adjusts for inflation), is down by 10 percent over the same period,” it noted.

A lower REER meant that the peso gained external price competitiveness.

According to Capital Economics, “another reason for optimism is the progress the Philippines is making on improving its infrastructure.”

“Poor road, rail and port facilities have for a long time been a drag on the country’s growth prospects, but the past few years have seen infrastructure spending increase sharply,” Capital Economics pointed out.

“Following the passage of a landmark tax reform bill at the end of last year, the government has the resources to fund further improvements. The latest budget projects that government spending on infrastructure investment will rise to 6 percent of GDP [gross domestic product] by 2020, from 4 percent in 2016,” it also said.                       /kga