Amid global trade risks, BSP optimistic about PH trade photo Philippine Star
Finance

Amid global trade risks, BSP optimistic about PH trade

Nov 12, 2021, 6:40 AM
Rose De La Cruz

Rose De La Cruz

Columnist

THE uncertainties in global supply chain and the slowing down of China’s growth would not dampen the optimistic outlook of the Bangko Sentral over Philippine trade performance towards end of 2021, calling it “better-than-expected.”

In a virtual briefing, BSP Governor Benjamin Diokno said they expect a favorable trade outlook in 2021 as the economy continues to recover from the pandemic, mainly due to broadening recovery in global economic activity.

“This is due mainly to the broadening recovery in global economic activity amid extensive vaccine rollouts and hefty policy support in key economies,” Diokno said.

“Goods exports for the first half of the year have already reached prepandemic levels, driven mainly by manufactures, headlined by electronics and mineral products, among others,” the governor said.
“Goods imports are also expected to pick up as domestic demand bounces back and as the government fast-tracks its major infrastructure initiatives,” he added.

In their latest balance of payments (BOP) projections in September, the BSP expects exports to grow by 14 percent from a 9.8- percent contraction in 2020, a Business Mirror report said.

This is alongside an acceleration of goods imports by 20 percent for 2021 from a 20.2-percent decline in 2020.

Tentative outlook

Despite the optimism, the governor said their outlook on goods trade remains tentative as it continues to be clouded by uncertainty over the pace of global and domestic recovery, including that of the country’s major trading and investment partners.

Among the downside risks to watch for the country’s exports and manufacturing prospects include the emergence and spread of more virulent Covid-19 variants and prolonged supply chain disruptions and logistical bottlenecks, Diokno stated.

Diokno said the emergence and spread of potentially new Covid-19 variants may result in renewed mobility restrictions, dampened consumer, and business sentiment. The prolonged supply chain disruptions and logistical bottlenecks, meanwhile, can cause further delivery delays, raw material shortages and elevated shipping rates.

The governor also said slower growth in China is a downside risk to the Philippines’s trade outlook.

“Notwithstanding these risks, the Philippine economy has sufficient buffers against external headwinds as its external sector remains healthy,” the governor said.

But Bloomberg said the economy is sufficiently insulated in the event the post-pandemic trade recovery falters due to supply chain disruptions and China’s slowing growth, said Diokno.

“Allow me to emphasize that the Philippine economy has sufficient buffers to ward off the potential adverse effects of increased external headwinds,” Diokno added.

Trade deficit

The Philippine Statistics Authority said the trade deficit in September stood at $4 billion, widening from the $2.27 billion deficit a year earlier and the $3.51 billion deficit in August. Exports rose 6.3 percent year on year to $6.68 billion, while imports rose by about a quarter to $10.67 billion.

Diokno said the base effects from the trade slump last year are expected to wane in the next few quarters, though he remains bullish that strong demand for tech products will boost exports.

“Firmer commodity prices, particularly in mineral and agro-based products, as well as a pickup in domestic production capacity amid phased easing of mobility restrictions, likewise lend support to the exports outlook,” he added.

However, Diokno also warned that the trade recovery is still uncertain and will depend on whether new, more infectious variants of coronavirus disease 2019 (COVID-19) emerge, heralding the return of restrictions and further supply chain disruptions.

Another factor that could dampen the recovery in trade is China’s slowing economy, in terms of the impact on exports and the manufacturing industry, Diokno said.

Diokno said positive factors include the increase in vaccination rates and progress being made in new treatments for COVID-19.

Diokno said the Philippines has strong fundamentals to sustain it through the negative impact of any trade disruptions. He cited ample dollar reserves, foreign direct investment flows, as well as remittances and business process outsourcing receipts.

BSP will continue to provide guidance that could help exporters in making sound economic and financial decisions, he said.

He said the BSP’s rediscount facilities and hedging mechanisms as well as products offered by banks promote access to credit by exporters.

“As a matter of policy, the BSP adheres to a market-determined exchange rate regime and utilizes a mix of policy tools to temper undue volatility in the foreign exchange market,” Diokno said.

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