Philippines steeper drop in non-electronics

With Philippines inflation at a post-1994 low (June: 1.2%), the signals from BSP governor Tetangco have turned more dovish, hinting on 9 July that both monetary and fiscal space are available to support growth. Weak activity amid prolonged period of inflation below target could tip the case for a one-off cut. The BSP has to balance this against the looming risk of El Niño.

"The weakness in both April and May Philippines exports add downside risks to the 6.5% 2015 growth forecast, following the very weak Q1 GDP print", says Barclays.

Partly to reflect the persistent weakness in exports amid smaller crop harvests, the IMF lowered its forecast for 2015 to 6.2% (from 6.7%). However, IMF upgraded 2016 growth to 6.5%, on the back of an improved budget outlook. Looking ahead, the recent pickup in the US ISM suggests stronger external demand could support a recovery in the coming months, although China's slowdown will likely remain a drag.