Philippine Exports see 41% Drop

The Inquirer (a Philippine newspaper)  is reporting that exports feel 41% in January.   That is compared to a fall in  December of 40.4%.   Thus, the downward trend continued into 2009.

It is believed that the Philippines will be unable to finish the year with moneypositive net exports.  The forecasters believe there will be a return to positive exports in the second quarter of the year.  I do not.  I believe the US will remain in recession or even enter a depression this year.

The USA remains the largest importer of Philippine goods and the US economy is likely to get worse before it gets better.  Japan is another major importer and the Japan economy is also in serious trouble as their exports are also down.

Electronics remain the largest commodity exported  from the Philippines.  Intel has already announced it will close its plant in the Philippines this year.  It was a major employer near Manila, the nations capitol city.

Further, the Net foreign direct investment (FDI) fell 48% last year.  One major analyst predicts further outflow of capital this year but the Bangko Sentral Pilipina ng (BSP) believes it will improve.   The BSP points toward the continued investment in call centers.

Both of the above situations will place upward pressure on the value of the dollar in the Philippines.   If overseas remittances did fall in January as I expect, the stage may be set for the perfect storm in terms of the value on the US dollar.  Even more positive for the American expat living on retirement income is that one way for the BSP to combat the fall in remittances is to increase the value of the dollar.

This will also help to increase exports to the USA and may even help with foreign investment.  The problem with foreign invest is not likely to improve in the near future as firms need their cash in order to survive now.   Now is not the time most industries to look for long term profits at the expense of lower cash on hand.

Inflation in the Philippines also rose slightly in February from 7.1% to 7.3%  If this continues it will be harder for the BSP to continue to reduce the interest rate.  Reducing the interest rate under normal circumstances should increase the amount of  Peso in the market which should further increase the value of the dollar.  So this could have a buffering affect on the dollars rise.    This could go either way.   If lower interest rates were to bring in more foriegn investments that would likely push the value of the dollar down.  However, a cash strapped USA is unlikely to be in a position to take advantage of the lower interest rates and the rates in the US are well below that in the Philippines.  The same is true for most other countries in the West.   Most Western countries are seeing their lowest interest rates of all time.  This is not limited to the USA.

The BSP has also reduced the rate of reserves from 21% to 19% a Philippine bank must have on hand.   This too puts more Peso into the market and helps to lower the demand.  If  the dollar’s value remains otherwise stable, this will make it easier for Filipino to buy dollars which pushes the value up.

I continue to expect the dollar to rise.  Metrobank of the Philipines predicts a rise to P53.  I think it will go higher than that, to at least P55 and it may approach P60.

More up to date articles regarding the peso to dollars rate of exchange can be found at dollar to Philippine peso.

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