By Beatriz Marie D. Cruz, Reporter

THE PHILIPPINES’ trade gap widened year on year in August as growth in imports still outpaced the increase in exports, even as the value of outbound shipments was the highest in 11 months, the government reported on Thursday.

Preliminary data from the Philippine Statistics Authority showed that the country’s trade-in-goods balance — the difference between exports and imports — stood at a $4.375-billion deficit in August, 6.6% bigger than the $4.105-billion gap in the same month last year.

However, month on month, the trade gap shrank by 10.25% from the $4.88-billion deficit posted in July.

Year to date, the trade deficit narrowed by 4.35% to $34.3 billion from the $35.86-billion gap a year ago.

The country’s balance of trade in goods has been in a deficit for 111 straight months (over nine years) or since the $64.95-million surplus recorded in May 2015.

Total external trade in goods amounted to $17.87 billion in August, up 1.8% year on year. Of the total, 62.2% was imported goods, while the remaining 37.8% was made up of exports.

In August, export sales inched up by 0.3% to $6.75 billion from $6.73 billion in the same month in 2023, logging a second straight month of increase.

This was the biggest export value in 11 months or since the $6.77 billion in September last year.

Month on month, exports increased by 7.97%.

In the first eight months of the year, exports grew by an annual 2.27% to $49.41 billion.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in an e-mail that the rebound in exports seen since July “has been driven primarily by a comeback in demand from nontraditional markets and, to a smaller extent, recovering shipments to both the US and Japan.”

“By contrast, exports to China and Hong Kong have remained essentially flat in comparison.”

Meanwhile, the value of imported goods rose by 2.7% to $11.12 billion in August from $10.83 billion a year prior. Month on month, imports inched down by 0.02%.

Year to date, imports declined by an annual 0.55% to $83.7 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the year-on-year increase in August imports to the peso’s appreciation versus the dollar.

“The faster growth in imports compared to exports may be partly attributed to the stronger peso exchange rate that made imports cheaper from the point of view of the locals, thereby increasing demand,” he said in a Viber message.

The stronger peso also made Philippine exports more expensive for international buyers, thus leading to a wider deficit, Mr. Ricafort added.

The peso closed at P56.111 versus the dollar at end-August, stronger by P2.254 from its P58.365 finish the previous month.

The Development Budget Coordination Committee (DBCC) projects 3% and 4% growth in exports and imports, respectively, this year.

KEY EXPORTS DECLINE
Manufactured goods, which accounted for 81.2% of the country’s export receipts, slipped by 0.6% to $5.48 billion in August from $5.51 billion a year ago.

Electronic products, which made up most of manufactured exports, declined by 8.2% year on year to $3.57 billion in August.

Semiconductor exports likewise dropped by 13.8% to $2.69 billion in August. Exports of mineral products slumped by 13.4% to $582.36 million.

The United States remained the top destination of Philippine-made goods in August with an export value of $1.22 billion, accounting for 18.1% of the total.

This was followed by Hong Kong with $942.56 million (14% of the total), Japan ($935.33 million or 13.9%), China ($849.38 million or 12.6%) and South Korea ($332.64 million or 4.9%). Other top export markets include the Netherlands, Singapore, Taiwan, Germany, and Thailand.

IMPORTS
Meanwhile, imports of raw materials and intermediate goods grew by 5.2% year on year to $4.06 billion in August. This made up 36.5% of total imports.

Imported capital goods picked up by 9.6% annually to $3 billion, while imports of consumer goods was steady at $2.24 billion.

Imports of mineral fuels, lubricants and related materials slid by 9.1% to $1.79 billion in August.

“Real import demand is still wobbling, with purchases of consumer goods remaining stagnant, at best, while demand for imported capital goods remains depressed,” Mr. Chanco said.

China was the biggest source of imports valued at $2.79 billion, accounting for a quarter of the total import bill in August.

It was followed by Indonesia ($972.4 million or 8.7% of the total), South Korea ($925.36 million or 8.3%), Japan ($827.11 million or 7.4%) and the United States ($707.33 million or 6.4%).

THE PHILIPPINES is among the countries that are most exposed to spillover effects from economic shocks and volatility in developed markets, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

Increased interconnectedness among ASEAN+3 financial institutions, markets and economies highlights the potential for contagion as the region remains susceptible to shocks from global factors and developed economies, AMRO said in its ASEAN+3 Financial Stability Report 2024 released on Thursday.

“Global factors have significant spillover effects on ASEAN+3 financial systems. Japan and Korea, and the regional financial centers (Hong Kong and Singapore), Malaysia and the Philippines are most exposed to global factors such as the VIX (CBOE Volatility Index), macroeconomic risk, commodity prices, and the US dollar exchange rate,” it said.

“The financial markets of developed economies (North America, the UK, and Europe) have strong contagion effects on ASEAN+3, as indicated by the percentage of variation in ASEAN+3 stock market returns attributable to shocks in the stock market returns of these developed economies. All ASEAN+3 economies have significant links to financial systems in developed economies, with equity returns in Hong Kong, Japan, Korea, Malaysia, the Philippines, and Singapore being particularly sensitive to shocks from developed markets.”

Developed economies’ impact on ASEAN+3 is stronger compared with the “moderate” spillover effects from emerging market economies outside the region, such as those in Latin America and the Middle East, it said.

Meanwhile, the Philippines has the least exposure to intraregional financial spillovers, AMRO said.

“The Philippines is a very different economy from the other ASEAN (Association of Southeast Asia Nations) countries in the sense that it is a very service-driven economy, but it has been very resilient in the last few years after the big shock in 2020,” AMRO Chief Economist Hoe Ee Khor said in a virtual briefing, referring to the coronavirus pandemic.

Mr. Khor said the Philippines should maximize potential investments in renewables, business process outsourcing, and tourism to boost the economy’s resilience to external shocks.

“But to do that, they need to develop the infrastructure… [It is] one of the weaknesses of the economy. The policy makers are aware of that, and they have a very ambitious infrastructure plan,” he added.

“And with that, I think the Philippine economy will grow quite rapidly.”

AMRO said the landscape in ASEAN+3 markets has evolved since end-2023 as risks associated with high inflation and interest rates have subsided but those related to geopolitical issues have worsened.

The start of the US Federal Reserve’s rate-cut cycle in September has led to easing monetary conditions globally, it said, but the conflict in the Middle East and the upcoming US presidential election continue to present risks for financial markets.

The region’s reliance on the US dollar also exposes it to risks of potential funding shortage and the transmission of shocks during periods of monetary tightening or geopolitical tensions, it added.

ASEAN+3 economies’ growing interconnectivity highlights the need to “take a holistic macroeconomic and financial view of the region to safeguard against systemic risks,” AMRO said.

“In the near term, authorities should stay alert to the risks of inflation resurgence, escalating geopolitical tensions, or a global growth slowdown, all of which could challenge the resilience of the ASEAN+3 financial system. Given the increased interconnectedness of financial systems, continuous monitoring of international spillovers is essential, along with strengthening ASEAN+3-centric surveillance and cooperation. This includes enhancing cross-border surveillance, data sharing, regional stress testing, home-host supervision, and liquidity support to manage and mitigate potential spillover risks effectively,” Mr. Khor said.

“To improve resilience against external shocks within the dollar-reliant environment, ASEAN+3 economies should reinforce their economic and financial fundamentals, strengthen surveillance frameworks for monitoring US dollar liquidity conditions, bolster macroprudential frameworks for banks and NBFIs (nonbank financial intermediaries), and provide financing support to member economies facing US dollar liquidity stresses. Additionally, reducing structural dependence on the US dollar in the medium to long term by encouraging the use of local currencies and establishing cross-currencies payment systems should be a priority,” he added.

The region should also monitor potential risks in the real estate sector, “as weakened demand and tighter financial conditions in several economies have severely impacted the financial health of property developers, leading to declining profitability, liquidity, and debt servicing capacity,” AMRO said.

“Though to a lesser extent than the Plus-3 economies (China, Korea, Hong Kong, Japan), ASEAN economies like Cambodia, Malaysia, the Philippines, Thailand, and Vietnam face similar issues with high unsold inventories and/or delayed projects,” it said.

Still, Mr. Khor said risks to financial stability in the region appear to have eased this year compared with the situation in 2023.

“The current climate of robust growth and disinflation presents regional policy makers an opportunity to reduce debt, rebuild policy space, and strengthen fiscal capacity to better manage potential shocks. Replenishing foreign exchange reserves during times of capital inflows can further enhance market confidence and provide a buffer against extreme market volatility,” he said.

“To tackle the near- to long-term risks and challenges to ASEAN+3’s financial stability, the region must come together as one and strive for resilience and stability,” Mr. Khor added. — Beatriz Marie D. Cruz