Outlook for Philippine exports cloudy: DBS

The export number for July is likely to disappoint again, registering negative growth of 6.8% YoY. This will mark the third consecutive month of contraction and this will be the situation until the high base effect wears off in November. The weak export number can be attributed to the underperformance of electronics exports over the last few months. With the North American semiconductor book-to-bill ratio dipping lower to 0.86 in July, the outlook for Philippine exports is still cloudy. Total outbound shipments will register minimal growth this year.

Following tame CPI numbers in recent months and more signs of uncertainty on the external front, our inflation forecast for this year has been lowered to 4.9%, from 5.3% previously. For 2012, the figure has also been trimmed to 4.7%, from 5.2% previously. Although loan growth numbers still suggest that price pressures are lurking, the central bank will be more concerned about the weak 2Q GDP figure and languishing export numbers.

With slow government spending and the delay in Private-Public-Partnership projects thus far, the BSP will have to shoulder the burden of lifting growth and refrain from any form of tightening in the near future. We no longer anticipate any rate hikes or increases in reserve requirement ratio for the rest of the year. For 2012, we have penciled in a total of 50bps worth of rate hikes starting in 1Q.