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The semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) said on Wednesday it now expects electronics exports to be flat after seeing a sharp decline in the first semester.

“We have revised our growth forecast from 5% for the year to flat, zero because realistically we’re down 7% (in the first six months). But we see a recovery in the third and fourth quarters. So that’s why we’re aiming for at least flat,” SEIPI President Danilo C. Lachica told reporters on Wednesday.

SEIPI data showed total electronics exports dropped by 7% to USD 21.19 billion in the January-to-June period from USD 22.78 billion in the same period in 2022.

Six sectors showed a decline in exports in the first half. This was led by automotive electronics which plunged 70.4% to USD 18.7 million, followed by office equipment (-44%), electronic data processing (-32.2%), telecommunication (-25.8%), semiconductor components/devices (-4.4%), and control and instrumentation (-0.9%).

On the other hand, some sectors recorded an improvement in exports, such as communication/radar (23.4%), medical/industrial instrumentation (20.1%), and consumer electronics (17.4%).

Mr. Lachica attributed the exports decline mainly due to geopolitical tensions, such as the US-China trade war.

“In the last quarter or so, we’ve been clobbered in terms of our electronics exports. In fact, at one point, we were 15% down compared to last year,” he said, noting that exports recovered in June.

Data from SEIPI showed that total electronics exports rose by 11.8% to USD 4.25 billion in the month of June.

Four sectors reported year-on-year growth led by medical/industrial instrumentation (34.9%), semiconductor components/devices (22.3%), communication/radar (19.6%), and consumer electronics (8.4%).

On the other hand, five sectors posted declines in June, namely automotive electronics (-54%), office equipment (-36.4%), telecommunication (-29.9%), electronic data processing (-29.2%), and control and instrumentation (-12.5%).

Mr. Lachica said SEIPI is still hopeful of a recovery in electronics exports in the second half.

“The demand is still there. We are hoping that the Thanksgiving demand and the Christmas demand will propel the recovery of the industry,” he said.

For the rest of the year, SEIPI expects most of its exports to go to neighboring countries, particularly in China and Hong Kong.

Mr. Lachica noted that the Netherlands replaced Germany as the top destination of Philippine electronics exports.

“In Europe, the biggest destination is now the Netherlands followed by Germany,” he said. — Justine Irish D. Tabile

Inflationary pressures in the Philippines remain one of the highest in Asia as food prices continue to rise, according to Nomura Global Markets Research.

Nomura Global Markets Research in a note dated Aug. 30 said the Philippines recorded the second-highest aggregate score of 103.3 in its ranking of inflationary pressures in Asia.

Singapore faces the highest inflationary pressures with a score of 104.

In Nomura’s scorecard, the Philippines is the only emerging market in Asia that still faces elevated risks to inflation.

“(This is) because of the (country’s) higher vulnerability to supply-side inflationary shocks that have spilled over more broadly and will likely unwind only gradually, in our view,” Nomura said.

Headline inflation slowed for a sixth straight month to 4.7% in July but marked the 16^th straight month it exceeded the central bank’s 2-4% target.

Inflation averaged 6.8% in the first seven months of the year, still above the central bank’s revised 5.6% full-year forecast.

Nomura noted inflationary pressures were most under control in Indonesia (96.5) and Thailand (96.8).

“Philippines appears most exposed to higher food prices, especially rice (which has an 8.9% weighting in its consumer price index basket). Higher food prices could result in higher headline inflation and a wider current account deficit, as it resorts to importation,” Nomura said. 

Rice inflation rose to 4.2% in July from 3.6% in June.

According to Nomura, the bar for all Asian central banks to resume rate hikes is “quite high.”

The BSP earlier this month extended its policy hold for a third straight meeting, keeping the benchmark interest rate at a near 16-year high of 6.25%.

“However, we expect the BSP to leave policy rates unchanged, taking comfort from the sharp drop in core inflation momentum and also due to the weakening growth outlook,” it said.

Nomura expects the BSP to cut rates starting March 2024.

Meanwhile, the Philippine central bank may be “encouraged” to start its policy easing if inflation falls within the 2-4% target range this year, Moody’s Analytics said.

Moody’s Analytics in a report dated Aug. 29 said Asian central banks are “walking on a tightrope” this year as inflation further decelerates but policy movements in the US and in Europe hinder them from cutting down borrowing costs.

“In economies that have slowed recently and where inflation has rapidly moderated, such as in the Philippines and South Korea, central banks may be encouraged to lower their policy rates as soon as inflation reaches their target range,” Moody’s said.

The BSP expects inflation to return to the 2-4% target band in the fourth quarter this year.

“On the other hand, they must watch the policy rate of the US and Europe so as not to allow interest rate gaps to rise further, risking volatility in foreign exchange rates — as seen in recent weeks in Southeast Asia as the yield on the US 10-year bond has risen,” Moody’s said.

The peso closed at PHP 56.725 against the dollar on Wednesday, up by 2.50 centavos from its previous close. Year to date, the peso depreciated by 1.71% or 97 centavos from its PHP 55.755 close on December 29.

“We expect central banks in Asia-Pacific to hold their policy interest rates steady at least through the end of this year, and probably longer, depending upon the stability of domestic demand and their respective currencies and how quickly external demand improves from China and from the European and North American economies,” Moody’s added. 

BSP Governor Eli M. Remolona, Jr. earlier said the Philippine central bank remains hawkish, and rate cuts are far off as inflation is still elevated.

The BSP will hold its next policy meeting on September 21. — Keisha B. Ta-asan

The Maharlika Investment Corp. (MIC), which will manage the country’s first sovereign wealth fund, can invest in joint ventures (JVs), infrastructure projects, and sustainable development programs, as well as extend loans.

Under the implementing rules and regulations of Republic Act No. 11954 or the Maharlika Investment Fund (MIF) law, the MIC can invest in joint ventures or co-investments, mergers and acquisitions; and mutual and exchange-traded funds invested in underlying assets.

The MIC can also invest in real estate and infrastructure projects. However, investments in infrastructure projects should be “directed towards the fulfillment of national priorities such as the national infrastructure program of the Department of Public Works and Highways and other infrastructure agencies, the inclusive innovation industry strategy of the Department of Trade and Industry, and the public investment programs of the National Economic and Development Authority.”

Investments in real estate should also be limited to “high-impact projects, those contained in the Strategic Investment Priority Plan, as well as other projects that are approved by the appropriate approving body to ensure that these are in line with the socioeconomic development program of the government.”

The MIC can also pour funds into health, education, research and innovation projects, as well as sustainable development programs.

It can extend “loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors, whether in the majority or minority position in commercial, industrial, mining, agricultural, housing, energy, and other enterprises, which may be necessary or contributory to the economic development of the country, or important to the public interest.”

The board of directors must also make sure that allowable investments are in line with the “principle of sustainability.”

The MIC is also authorized to invest in cash, foreign currencies, metals, and other tradable commodities; fixed-income instruments issued by sovereigns, quasi-sovereigns and supranationals; domestic and foreign corporate bonds; listed or unlisted equities, whether common, preferred, or hybrids; and Islamic investments, such as Sukuk bonds.

Board directors
Meanwhile, the list of nominees for the MIC’s president and chief executive officer (CEO), regular directors, and independent directors must be presented to the President by October.

“The solicitation of nominees and applications, for purposes of initial appointment, may be made immediately upon the publication of the IRR, the closing date of which shall not exceed 15 days from the effectivity of the IRR,” it said. The IRR will take effect on Sept. 12.

Under the rules, the MIC president and CEO must have an advanced degree (MBA, MA, MSc, PhD) in finance, economics, business administration, or any related field from a reputable university.

The MIC president and CEO must also show “exceptional experience and expertise in corporate management, financial planning strategy, strategic planning and vision, market and business development, budget development,” and have work experience in a finance or investment-related field for at least 10 years.

A minimum of 10 years in a senior leadership role in a “reputable financial institution or public or private sector organization” is also required.

The president and CEO will direct and supervise the operations and internal administration of the MIC. They will also be charged with the risk management, financial performance, human resources, as well as the accounting and legal affairs of the MIC.

Meanwhile, regular directors must be Filipino citizens, at least 35 years old and must be of “good moral standing and reputation, of recognized probity and independence and have substantial experience and expertise in corporate governance and administration, investment in financial assets, and/or management of investments in the global and local markets.”

The independent directors must have “probity, competence, expertise and experience in finance, economics, investments, business management, or law, and are highly capable to contribute to the attainment of the objectives and purposes of the MIF.”

Both regular and independent directors are required to have a master’s degree in finance, economics, business administration. They must also have at least 10 years of experience in finance, investments, economics, business, or any related field. — Luisa Maria Jacinta C. Jocson

The central bank is looking to implement the Comprehensive Credit and Equity Exposures Report (COCREE) among all lenders by next year.

The Bangko Sentral ng Pilipinas said in a proposed circular that the COCREE will cover universal and commercial banks (U/KBs), thrift banks, rural banks, cooperative banks, nonbank financial institutions with quasi-banking functions (NBQB), trust corporations, as well as digital banks.

The latest version of the reporting requirement will be referred to as COCREE 2.0. The 2021 COCREE only covered U/KBs and their subsidiaries, as well as digital banks.

The central bank is also looking to expand its data requirements to strengthen its surveillance and analysis of emerging risks in the financial system.

The draft circular will amend section 173 of the Manual of Regulations for Banks and section 172-Q of the Manual of Regulations for Non-Bank Financial Institutions.

Stakeholders are given until Sept. 19 to submit feedback on the draft circular to the BSP.

“The Comprehensive Credit and Equity Exposures Report (COCREE) is designed to capture granular borrower/counterparty information for all credit and equity exposures of BSP-Supervised Financial Institutions (BSFIs),” the central bank said.

U/KBs, their subsidiaries, and digital banks are expected to comply with the enhanced credit reporting system starting January 2024.

Standalone thrift banks, NBQBs, and trust corporations will use COCREE 2.0 in February next year, while rural and cooperative lenders will adopt the reporting standard by March 2024.

The COCREE 2.0 will be electronically submitted by banks monthly, within 15 banking days after the end of the reference month.

“The electronic submission of the COCREE 2.0 shall conform with the prescribed submission procedures and guidelines covering the required format structure, line-item instructions, validation rules and appropriate technology for reporting, among others,” the BSP said.

The COCREE 2.0 will also be considered a category A-1 report.

The central bank said BSFIs can test the submission of the COCREE 2.0 by the fourth quarter to prepare for the live implementation in 2024.

Penalties for reporting violations will not be imposed during the pilot, but it will be strictly enforced after the grace period following the live implementation.

The 2021 COCREE will no longer be used upon live implementation of the COCREE 2.0. — K.B. Ta-asan

Philippine economic growth is likely to further slow this year and in 2024, amid “strong” external headwinds and the end of “revenge spending,” GlobalSource Partners said in a report.

GlobalSource said it cut its Philippine gross domestic product (GDP) forecast to 5.2% for this year from 5.5% previously. It also slashed its GDP forecast for 2024 to 5% from 5.8% previously.

Both projections are below the government’s 6-7% target this year and the 6.5-8% goal in 2024.

“Economic growth is slackening. On one hand, multiple headwinds continue to buffet the economy — from weak external growth and tight global financial conditions to volatile commodity prices and high local inflation,” GlobalSource analysts Romeo L. Bernardo and Maria Christine Tang said in a report dated Aug. 28.

“On the other hand, the tailwind from post-pandemic revenge spending is losing force and, here as elsewhere, the expected swift recovery of Chinese tourism is not happening,” it added.

The Philippine economy expanded by a weaker-than-expected 4.3% in the second quarter, its slowest growth in over two years.

For the first half, GDP growth averaged 5.3%. The economy would have to grow by 6.6% in the second half to hit the government’s target.

GlobalSource said the Philippine economy will continue to face “strong” headwinds going into 2024, amid a slowdown in major trading partners, relatively tight financial conditions and fiscal constraints

“Although we expect monetary easing to start next year, the absence of new growth drivers beyond remittances and service exports compels a significant reduction in our (2024) GDP growth forecast from 5.8% to 5%,” GlobalSource said.

An economic rebound will depend on the government’s ability to implement its catch-up plan for spending. The weak second-quarter growth was partly blamed on the 7.1% contraction in government spending.

“We think that under the supervision of economic managers, spending will improve, although not fully and perhaps with potential costs to spending quality,” it added.

Other risks to the Philippine outlook include a potential recession in the US, a sudden spike in inflation due to food supply issues, geopolitical tensions and other shocks, GlobalSource said.

It kept its inflation forecast for this year at 5.5%, while lowering the 2024 projection to 3.3% from 3.5% previously.

Inflation averaged 6.8% in the first seven months of the year, still above the central bank’s revised 5.6% full-year forecast.

GlobalSource expects the Bangko Sentral ng Pilipinas (BSP) to start cutting rates next year, “possibly leading to more upbeat sentiment.”

The BSP earlier this month extended its policy pause for a third straight meeting, keeping its benchmark interest rate at a near 16-year high of 6.25%.

“The odds of a rate hike will be higher if the sharp currency depreciation comes alongside higher-than-expected headline inflation, reflecting currently high crude oil prices and exacerbated by spikes in prices of key food items, notably rice, and higher-than-expected wage increases,” it said.

However, GlobalSource said the current rate pause is likely to extend through the end of 2023. It noted the BSP is awaiting more definite signals from the US Federal Reserve that it is ending its tightening cycle and beginning its rate cuts.

“Ahead of any Fed cut, the BSP may also consider another cut in banks’ reserve requirement ratio (RRR) if the inflation outlook turns benign. BSP Governor Eli M. Remolona reportedly said that he would like to see the RRR eventually fall to 5% from the current 9.5%,” it added.

In June, the BSP cut the RRR for big banks and nonbank financial institutions with quasi-banking functions by 250 basis points (bps) to 9.5%.

It also reduced the ratio for digital banks by 200 bps to 6% and by 100 bps for thrift banks, and rural and cooperative banks to 2% and 1%, respectively. — Luisa Maria Jacinta C. Jocson