Philippine exports unlikely to experience rebound

Good news is net exports provided 5.2pp to headline growth but the bad news- the bounce is likely due to a restocking cycle.

Analysts say while 1Q numbers may appear strong, it is all downhill from here. There's a bright spot with the domestic sector though. Policy makers could embark on more stimuli to support the economy. Inflation is likely to come in at the low end of the central bank’s target of 3-5%. 

Here's more from DBS Group Research:

The GDP growth forecast for 2012 has been upgraded to 5.3% while maintaining the 2013 projection at 5.2%. The revision in forecast was on the back of a 6.4% YoY surge in GDP growth in 1Q and assumes a decelerating growth trajectory for the rest of this year. On the external front, net exports provided 5.2pp to headline growth amid a sharp recovery in electronics export numbers in the first two months of this year.

On the domestic front, private consumption held steady, contributing 4.7pp to headline growth, while government consumption provided 2.3pp. Inventory drawdown was the largest drag to growth. In addition, 4Q11 growth has been revised up. 

Previously, growth was put at 0.9% QoQ sa, but the figure has since been pushed up to 1.7%QoQ. This also means that growth has accelerated for two consecutive quarters from a trough of 0.5% QoQ sa in 3Q11 to 2.5% QoQ in 1Q12. Full-year growth for 2011 has also been revised up to 3.9%.

1Q numbers are certainly strong, but the weak external outlook suggests that this growth momentum will slow significantly in the coming quarters. In particular, the bounce in electronics exports may be largely due to a restocking cycle. Amid risks of a further slowdown in the Eurozone, the US and China, a pickup in final demand do not appear likely in 2H. As such, the rebound in electronics shipment may prove temporary.

The bright spot lie with the domestic sector. Policy makers have the leeway to embark on more stimuli to support the economy. Inflation is likely to come in at the low end of the central bank’s target of 3-5% this year and with inflationary pressures coming off, the overnight borrowing rate can be held at 4% for the rest of this year. There is also fiscal room to introduce another stimulus. The budget deficit for the first four months of the year amounted to only PhP2.9b. Comparatively, the four-year average deficit over the same time period was PhP67.3b. As such, we believe domestic demand will be relatively well-supported but full-year growth will be dragged down by lackluster external demand.