Philippines' Quarter 2 current account surplus $2.5-Billion


The Philippines' current account yielded a surplus of $2.5 billion, equivalent to 3.6% of GDP, in the second quarter compared to a surplus of $2.3 billion a year ago, the Bangko Sentral ng Pilipinas said in a statement.

The current account is the sum of the balance of trade, net income from abroad and net current transfers.

The Philippines posted a surplus despite weak exports growth.

The country's balance of payments (BOP) position yielded a surplus of $1 billion in the second quarter compared to a surplus of $73 million in the same period last year, due largely to the higher current account surplus and net inflows in the financial account, the central bank said.

The BOP surplus in January to August reached $3.36 billion, central bank data released on Thursday showed. The central bank has forecast a full-year BOP surplus of $4.4 billion.

The central bank has said the country's "healthy" external accounts should help support the Philippine peso.

The Philippines defies external challenges to notch up growth.

Strong domestic demand for a broad range of goods and services is galvanizing economic growth in the Philippines, helping the country to buck a regional slowdown. Consumer confidence remains high, buoyed by news that the government plans to roll out several big-ticket infrastructure projects, in part aimed at creating jobs. However, the Philippines remains vulnerable to many of the external factors that are weighing on its peers

Consumer Show Confidence

The economy expanded at an annual rate of 7.5% in the period April to June 2013, according to the Bangko Sentral ng Pilipinas (BSP), marking a fourth consecutive quarter of growth over 7%.

Commenting on the figures, which were made available in August, the BSP governor, Amando Tetangco, Jr., voiced his hope that the economic performance would "help further anchor market confidence, and thus support the local foreign exchange and stock markets".

"Solid domestic demand should help counter possible negative pressures from global developments," he told the media.

The Philippines' economic expansion sets it apart from some other Southeast Asian markets, where stock exchanges and currencies have fallen, largely due to uncertainty over the US Federal Reserve's asset-purchase program. Figures showed that manufacturing output in Thailand fell for the fourth straight month in August.

In July, ratings agency Standard & Poor's projected 2013 growth of 6.9% for the Philippines, which it said would be driven by "strong domestic demand". "The more domestically-led ASEAN economies, headed by the Philippines and Indonesia, continue to outperform the more trade-dependent newly industrialized economies," the agency reported.

Manufacturing growth rose by 9.7% in the first quarter of 2013 on the back of higher demand for food, appliances, communication and transport. Construction shot up 32.5% in the same period, while services expanded 7%.

Companies tap into demand

On-the-ground developments across the sectors confirm the key role that domestic demand is playing in supporting the Philippines' economy.

Listed beverage bottler Pepsi-Cola Products Philippines plans to tap into strong demand by expanding its facilities. The company's net income for the first six months of 2013 jumped 17% to P657.94m ($15.03m) from P560.41m ($12.8m) in the same period last year.

Coffee growers are also being encouraged to increase output, in a market where demand significantly outstrips local supply. Production reached 30,000 metric tons in 2012, less than half the 70,000 MT consumed.

Sales of domestic appliances in 2012 were up 19.5% on the previous year, according to research outfit GfK Asia. The firm noted in August that 352,680 major home appliances, valued at $352.7 million, were sold across the Philippines between January and June 2013.

"The Philippines has proven it [has] particular strength in mitigating external headwinds because its domestic demand has kept the economy running even as other nations suffered," Vishnu Varathan, a Singapore-based senior economist at Mizuho Corporate Bank, told Bloomberg in July.

Infrastructure Boost

A promising job market, which has been strengthened by the government's plans to roll out several large infrastructure projects, is proving to be instrumental in sustaining domestic growth. National Economic and Development Authority data released earlier this year showed that the Aquino administration approved P439.15 billion ($10.03 billion) for 42 large-scale ventures in 2012.

The initiatives include the P2.59 billion ($60 million) Agus VI hydroelectric power plant, the light-rail transit extension project, valued at P61.53 billion ($1.41 billion), and the P43.33-billion ($990-million) Cavite-Laguna expressway.

The projects will play a key part in facilitating a government bid to create 1 million jobs annually. Presidential Communications Secretary Sonny Coloma said in June that the Aquino administration was focusing on boosting infrastructure, together with agriculture and tourism, to achieve its goal.

"Sustaining high GDP growth of above 5% will be able to provide good jobs to around 2.2 million Filipinos between 2013 and 2016," the World Bank wrote in May. "However, by 2016, that still leaves 12.4 million Filipinos who will have no other option but to work abroad."

Yet money continues to flow in from the nation's overseas workers, with personal remittances reaching $2 billion in April 2013, up 7% year-on-year. "Remittances remained robust on the back of sustained demand for skilled Filipino manpower in various countries worldwide," the BSP said in a statement.

Looking long Term

Analysts believe the time is right for the government to focus on generating long-term economic stability and reducing poverty by harnessing the heady growth levels. In particular, they highlight the need to improve labour regulations and health systems, which will help address the challenge of long-term poverty. "A unique window of opportunity exists today to accelerate reforms," said the World Bank.

With report from ABS-CBN and Businessworld Online

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