Building program drove trade deficit wider in Feb. — HSBC

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construction trade deficit

By Melissa Luz T. Lopez
Senior Reporter

THE trade deficit likely widened further in February as imports continue to outpace the growth in outbound shipments, Hongkong and Shanghai Banking Corp. (HSBC) said, owing to a greater need for raw materials as the Philippines takes on increased construction activities.

“We expect the trade balance to widen in February as exports decline due to cyclical factors and imports remain elevated to build out the government’s planned infrastructure projects. Imports have been high since Q4 2017 due in large to part raw material imports, particularly iron and steel,” HSBC Global Research said in a report published Friday.

The Philippine Statistics Authority (PSA) will report trade data on Tuesday.

The Philippines posted a $3.317-billion trade deficit in January, wider than the $2.469- billion gap posted during the same period in 2017 and close to December’s $3.84-billion deficit.

HSBC estimates that the deficit widened to $3.72 billion for February from $2.469 billion a year earlier.

HSBC estimates that imports of goods rose 16% from 11.4% in January, while exports are likely to have remained flat for a second straight month. In particular, HSBC economists are flagging export receipts to have posted a slight contraction.

The government targets exports and imports to grow by 8% and 9%, respectively, this year.

In January, the country’s import bill saw double-digit increases in six sectors: industrial machinery and equipment (26%); iron and steel (25%); cereals and cereal preparations (22.9%); electronic products (18.9%); telecommunication equipment and electrical machinery (13.5%); and “miscellaneous” manufactured articles (11.4%).

Capital goods posted the biggest growth in imports, rising 16.9%, followed by a 14.9% pickup in raw materials and an 8.1% increase in consumer items.

Meanwhile, the 0.50% increase in exports came on the back of “sluggish” sales of non-electronic and agro-based products, the National Economic and Development Authority said.

Economic managers have dismissed fears of the widening trade deficit saying that these reflect the increasing need for raw materials as the “Build, Build, Build” infrastructure program takes shape.

The current account deficit widened to $2.5 billion in 2017 from $1.2 billion the previous year as imports grew faster than exports, according to data from the Bangko Sentral ng Pillipinas (BSP).

This has been pointed out as a major factor in the weakening of the peso, although central bank officials have said that the wider trade deficit simply reflects capital accumulation for the Philippines’ ambitious infrastructure spending plans, pegged at P8.44 trillion from 2016 to 2022.

HSBC said it estimates the current account deficit will widen to 0.90% of gross domestic product (GDP) in 2018, from 0.80% last year. This is much wider than the $700-million deficit expected by the BSP, equivalent to 0.20% of GDP.