BSP likely to hike by Q4 2015

Philippines exports came in much stronger than expected in June, falling only 3.3% y/y, improving drastically from the 17.4% drop in May. The June improvement came largely from two sources of exports, electronics (9.5% y/y) and furniture (25.8% y/y). In terms of geography, shipments to Japan turned sharply positive (+29% y/y), while exports to Hong Kong and Europe were also robust. Exports to ASEAN and China continue to underperform.

Despite today's improvement, for Q2 overall exports were down 8.3% y/y, worse than the -0.3% y/y in Q1. Combined with softness in remittances, poor weather conditions and slow government disbursement we see downside risk to our 6.5% growth forecast for 2015, following the weak Q1 GDP print. 

Still, the ongoing improvement in the US ISM suggests stronger external demand, which could support activity in 2H 2015. And as we approach the election season, campaign-related spending should also have a positive impact on private consumption.

"While near-term inflationary pressures look manageable, it is not seen that the BSP looking to increase monetary accommodation. With the growth outlook remaining resilient, the next policy move might be a hike, most likely in Q4 15, after the Fed has begun its expected tightening. Risks to our rate hike view are biased towards the move being pushed out", says Barclays.