Fears abound as Philippine export growth plummets 27% in September

Given the backdrop of slower global growth, worries about the economy are certainly warranted. To be sure, export growth dropped to a 29-month low of -27.4% YoY in September following a 13.7% contraction in the preceding month. This implies that total export growth for the year may be flat or even negative. However, these numbers have probably been distorted by price effects. In nominal terms, exports were down by around 14% YoY in 3Q. But if we consider the volume of exports (only data from July and August are available), the average YoY growth is at a far more sanguine 23%. In nominal value terms, electronics exports were the hardest hit.

However, the export volume of electronics manufactures was actually higher in July and August compared to a year ago. This suggests that overall GDP may not be as bad as the headline export numbers are suggesting.

Moreover, other high frequency indicators are suggesting that the economy is still relatively strong. Firstly, the composite leading economic indicator has continued to advance from 0.116 in 3Q to 0.168 in 4Q. Secondly, loan growth has been accelerating, reaching 24.8% YoY in August.

In seasonally-adjusted terms, loan growth is has been hovering above 2% MoM since April, significantly higher than around 1% in 2H10. Thirdly, remittance growth has also been healthy despite external headwinds with total remittances rising by an average of 8.6% YoY (2% MoM, sa) in the three months ending September.

These indicators point to a relatively strong domestic economy and we suspect that sequential growth could rebound from 0.9% (QoQ, sa) in 2Q to around 1.4% (4.9% YoY) in 3Q. Our 4.6% GDP growth forecast is maintained for this year. Going into 2012, however, the prospect for an export recovery is becoming more distant. There are downside risks to our 5.2% growth forecast for 2012.