Philippine exports expected to pick up this year

MANILA, Philippines—The country’s exports are expected to recover from last year’s slump as the US economy, one of the biggest markets for Philippine-made goods, begins to improve.

According to the Bangko Sentral ng Pilipinas, the decision of the US Federal Reserve to maintain interest rates of the world’s biggest economy at historic lows should translate to higher consumption and investment demand.

As a result, US demand for imported goods, such as those from the Philippines, may also rise, the BSP said.

“To the extent that the Fed action sustains the positive growth outlook in the United States, this should also be positive for our own trade prospects,” BSP Governor Amando Tetangco Jr. said.

The US central bank recently announced that it would keep its interest rates between the range of zero and 0.25 percent until end-2014.

Analysts believe that the Fed’s decision will further stimulate growth of the US economy, which has been stagnating since it recovered from a recession in 2009.

Philippine exports in the first 11 months of 2011 fell by 5.6 percent to $44.6 billion, from the $47.3 billion reported in the same period of the previous year, due to weak demand from advanced economies led by the United States.

The drop was led by electronics, the country’s major export product.

Local economists have explained that, during tough times, people tend to focus consumption on basic goods and spend less on non-essentials like electronics.

Electronics being exported by the Philippines are intermediate goods used by foreign buyers to manufacture consumer electronics goods, such as computers and cellular phones.

Also, Tetangco said that the decision of the US Fed to maintain low rates for the next two years would allow the BSP flexibility to keep the country’s interest rates at relatively low levels.

The BSP last week cut key rates by 25 basis points.

Domestic interest rates are partially anchored on rates abroad because huge gaps may lead to flight of significant amount of capital from one area to another, disrupting an economy in the process.

“The Fed move affirms some policy certainty from that part of the world, which is important for anchoring global investor action and which could translate to providing EMEs [emerging market economies], including the Philippines, some policy breather to concentrate on improving domestic demand,” the BSP said.

The central bank’s overnight borrowing and lending rates, which influence commercial interest rates, now stand at 4.25 and 6.25 percent, respectively. Both have inched closer to the record low of 4 and 6 percent.

Philippine monetary officials said that the lower interest rates would encourage individuals and enterprises to borrow more from banks.

The Philippine economy grew by 3.6 percent in the first three quarters of 2011. For the full year, it is estimated to have grown just shy of 4 percent.

Government officials are hoping that the economy this year will grow by a faster rate, setting the target at 5 to 6 percent.