The country’s trade-in-goods deficit in June shrank to its smallest amount in three months, although this did not prevent the year-to-date shortfall from surging faster than in the previous year, the Philippine Statistics Authority (PSA) reported on Friday. 

Preliminary PSA data showed merchandise exports during the month expanded by 17.6% year on year to $6.51 billion compared with a revised 30.8% expansion seen in May. Nevertheless, this marked a reversal from the 10.1% contraction posted in June of last year.  

Meanwhile, merchandise imports grew by 34.2% to $9.33 billion in June, compared with a revised 55.6% growth in May and the 20.8% contraction last year. 

June marked the fourth and fifth consecutive month of growth for exports and imports, respectively. 

This brought the trade deficit to $2.83 billion in June, smaller than the revised $3.17-billion gap recorded in May, but bigger than the $1.42-billion shortfall in June 2020. 

Year to date, the trade balance widened to a $17.44-billion deficit, from the $11.37-billion trade gap in 2020’s comparable six months. 

For the same six-month period, exports grew by an annual 20.9% to $35.90 billion, surpassing the Development Budget Coordination Committee’s (DBCC) revised export growth target of 10% for 2021. Meanwhile, imports increased by 29.8% to $53.34 billion year to date, also exceeding the DBCC’s 12% target for the year. 

Manufactured items, which make up around four-fifths of the country’s total export goods, rose 19% year-on-year in June to $5.43 billion. 

Export sales of electronic products jumped by 12.3% to $3.72 billion, with semiconductors contributing $2.75 billion, up 7.3% from a year ago. Electronics made up more than two-thirds of manufactured goods and more than half of the country’s exported goods. 

Exports of forest and mineral products also increased by 44.4% (to $31.8 million) and by 24.7% ($523.16 million), respectively. Petroleum products, which contributed to less than a tenth of total exports, grew six times to $921,978. 

On the other hand, exports of agro-based products fell by 15.5% to $366.35 million. 

Meanwhile, imports of mineral fuels, lubricant and related materials went up by 2.3 times to $1.20 billion in June from $515.74 million last year. 

Imports of consumer goods rose by 28.8% to $1.46 billion from $1.13 billion previously. 

Capital goods imports increased by 26.1% to $2.80 billion in June, followed by raw materials and intermediate goods with a 26% year on year growth to $3.81 billion. 

“The growth of imports and exports was slower in June versus the last two months, as base effects slowly tapered off,” Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a research note. 

“Worth noting is the value of exports which has finally exceeded its pre-pandemic level despite the current challenges in global shipping. On the other hand, imports are slowly moving closer to full recovery given the improvement in domestic demand,” Mr. Neri said. 

OUTLOOK 

In the same note, Mr. Neri and the BPI research team said the probability of a double-digit growth in second-quarter gross domestic product (GDP) has increased given the latest trade figures. 

“Even though Metro Manila was under enhanced community quarantine (ECQ) and modified ECQ in April and May, demand improved substantially during the quarter as shown by imports. This expansion can be attributed to the adjustments made by both businesses and consumers,” Mr. Neri said. 

“Similar to previous lockdowns, the latest one will hurt the economy and will likely result in higher unemployment. However, the impact on the economy might be less severe given the adjustments done by businesses and households,” he added. 

The government has once again placed Metro Manila under ECQ until Aug. 20 to control the Delta variant of the coronavirus disease 2019 (COVID-19), which is known to be more infectious compared with the original strain. 

“Should these curbs persist past the two-week schedule, we could see overall trade to dissipate in the coming months,” ING Bank NV Manila Senior Economist Nicholas Antonio T. Mapa said in a statement to reporters. 

Mr. Mapa said the rebound in imports so far this year led to the widening of the trade deficit with overall current account balance likely to “revert to deficit territory” after it posted a surplus last year when imports contracted. This, he said, along with the resurgence on the demand for the dollar led the peso to depreciate by 4.7% year to date. 

He also noted a weaker peso is “still likely” despite a possible reversal in trade trends brought by tighter lockdown measures. 

“The reimposition of lockdowns across the country may force recent trade trends to reverse, but we doubt another round of import decline in 2021 will be enough to duplicate the peso appreciation trend we saw last year.  An overall stronger dollar coupled with portfolio outflows tied to growing concerns about the Philippine growth trajectory are likely to drive peso direction in the coming months even if the trade deficit narrows from its current level of $2.8 billion,” Mr. Mapa said. 

The country’s factory output sustained its rebound for the third straight month in June, the Philippine Statistics Authority (PSA) reported on Friday. 

Preliminary results from the PSA’s latest Monthly Integrated Survey of Selected Industries showed the volume of production index surging by 453.1% year on year in June, faster than the revised 263.2% annual growth posted in May. This was also a reversal of the 80.6% decline in June last year. 

The June reading marked its third consecutive month of growth in manufacturing production following 13 straight months of decline. 

Year to date, factory output growth averaged 22.4%. 

The PSA noted annual increases in 19 out of 22 industry divisions in June led by the manufacture of coke and refined petroleum products (2,932.2%); fabricated metal products, except machinery and equipment (132.6%); and wood, bamboo, cane, rattan articles, and related products (85.7%). 

Capacity utilization — the extent to which industry resources are used in the production of goods — averaged 67.7% in June, higher than the 66.6% recorded the previous month. 

Of the 22 industry divisions, 18 exceeded the capacity use rate of at least 50%. Among these groups with the highest utilization rates were manufacturers of furniture (83%), other non-metallic mineral products (78.7%), and tobacco products (76.2%). 

“The gradual re-opening of the economy that came with less restrictive quarantine restrictions has revitalized demand and motivated greater production, contributing to the rosier industrial production performance,” said University of Asia and the Pacific (UA&P) Senior Economist Cid L. Terosa in an e-mail interview. 

“We cannot discount the possibility that many producers are priming themselves to quickly respond to stronger future demand by building up their inventories. This forward-looking expectation has contributed to the rosier industrial production performance,” he added. 

In a separate e-mail, Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion attributed the June performance to base effects. 

“Note that prints a year ago had deep declines. The positive number also represents a more open economy compared to last year’s stringent lockdowns,” Mr. Asuncion said. 

Looking forward, the economists expect manufacturing production in July to exhibit continued growth as figures during period do not yet reflect the impact of the more infectious Delta variant of the coronavirus disease 2019 (COVID-19) on the economy. They noted that performance in the next few months would be volatile due to the reimposition of tighter lockdowns this month. 

“Factory output in July will continue to be strong, but the strength of the recovery of manufacturing production will most likely be curtailed in August because of the heightened quarantine restrictions imposed on major manufacturing centers of the country such as the NCR (National Capital Region) and Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon),” UA&P’s Mr. Terosa said. 

He likewise expects manufacturing to support the recovery of the agriculture and service sectors, provided that the pandemic response is addressed and managed effectively in the coming months. 

For UnionBank’s Mr. Asuncion: “Manufacturing performance [for the rest of the year] will be a function of the handling of COVID-19 Delta variant spread, the pace of vaccinations, and the pandemic response in general,” he said. 

Manufacturing managed to eke out an annual 0.5% gross value added (GVA) growth in the first quarter this year based on the PSA’s latest national accounts. This compares with the sector’s full-year performance in 2020 wherein its GVA declined by 9.8%. 

The entire country has been under lockdown since the pandemic began in March 2020, although restrictions varied among the regions.  — Lourdes O. Pilar 

The Department of Budget and Management (DBM) on Friday released P10.894 billion in funds for financial aid to be given to nearly 11 million residents in Metro Manila, which is under an enhanced community quarantine (ECQ) until Aug. 20. 

Funds for the financial aid were sourced from the savings of the 2020 budget, DBM said in a statement.  

“Affected low-income individuals and families are expected to receive P1,000 per person and a maximum of P4,000 per household, to ensure that food and other non-food requirements are met despite the imposed lockdown,” the department said. 

The cash aid is meant for the bottom 80% of the population in Metro Manila, based on the population projection and available data of the Philippine Statistics Authority.  

The Bureau of the Treasury will be in charge of releasing the cash aid through the authorized government servicing banks of the 17 local government units of the National Capital Region. Meanwhile, distribution of the funds will be monitored by the Department of Interior and Local Government as well as the Department of Social Welfare and Development (DSWD). 

Based on Local Budget Circular 138, Quezon City will have the largest allocation of P2.372 billion, followed by Manila (P1.488 billion), and Caloocan (P1.342 billion). 

Allocations for the other LGUs are as follows: Taguig (P723.971 million); Pasig (P650.886 million); Valenzuela (P589.309 million); Parañaque (P556.15 million); Makati (P511.984 million); Las Piñas (P488.015 million); Muntinlupa (P441.609 million); Marikina (P365.749 million); Pasay (P356.727 million); Mandaluyong (P347.652 million); Malabon (P307.004 million); Navotas (P197.713 million); San Juan (P101.794 million); and Pateros (P52.419 million). 

Asked about financial aid for other provinces under a lockdown, DBM Officer-in-Charge and Undersecretary Tina Rose Marie L. Canda in a Viber message said the Inter-Agency Task Force for the Management of Emerging Infectious Diseases has no figures yet regarding the bottom 80% population of Laguna. 

On the other hand, she noted that residents in Iloilo and Cagayan de Oro were given cash assistance by the DSWD in late July. 

Marikina Rep. Stella Luz A. Quimbo said she hopes that DBM could release more financial aid, citing about five to six million workers in Metro Manila could be affected by a “no work, no pay” scheme during the lockdown. 

“Baka marami na naman magreklamo na hindi sila nasali sa listahan, bagamat kailangan na kailangan nila ang ayuda. Kaya’t magandang P1,000 per head na lang ang ilaan natin na ayuda para sa ECQ-affected individuals (There could again be concerns of people saying they were not included in the list of recipients, even when they need aid. So it would really be better if there is cash aid of P1,000 per head),” she said in a Viber message. 

Ms. Quimbo is one of the principal authors of the Bayanihan III or Bayahian to Arise as One Act, which includes a P2,000 cash subsidy for all Filipinos. The P400-billion stimulus package has been approved by the House of Representatives but is still pending in the Senate. 

“Economic managers committed to look for funds. No word yet on how much they have found,” Ms. Quimbo said, noting their meeting happened weeks ago when the Delta variant was not yet an issue. Earlier, economic managers have said they could only fund P173 billion for a stimulus response this year. 

She said disbursing financial aid will help encourage Filipinos to stay at home and prevent the spread of the virus.  

“Because of the prolonged lockdowns since the pandemic started, we cannot expect our kababayans to have savings to tide them over another round of lockdown,” she said. 

Meanwhile, Asian Institute of Management economist John Paulo R. Rivera said the manner in which financial aid will be distributed will also be crucial. To recall, people had to line up to get the cash assistance in previous lockdowns, raising concerns these would be so-called “super spreader” events. 

“What is more important is that the cash assistance reach those who need it the most in a less inconvenient way compared to previous lockdowns,” Mr. Rivera said in a text message. 

Infections rose by 10,623 to bring the active cases to 74,297 on Friday, based on data from the Department of Health. This is the highest daily increase since April. 

A combination of Delta variant surge and low vaccination rates has made Southeast Asia the world’s worst virus hotspot and its financial markets are feeling the brunt. 

Stocks have slumped as deaths in the region soar, with benchmarks in the Philippines and Vietnam leading global declines over the past month. Del Monte Philippines delayed its initial public offering this week citing market volatility from rising caseloads, and some analysts are predicting more losses for Southeast Asian currencies that have lagged the broader region this quarter, with the Thai baht at its weakest since 2018. 

For investors the key sticking point before looking to bet on a recovery is low vaccinations, with many countries in the region yet to get out of single digits in terms of percentage of population fully inoculated. That’s leading to postponed reopenings and reinstated mobility restrictions — a divergence from the rest of the world — exemplified by Indonesia recently ditching a target of reaching herd immunity. 

“ASEAN markets are failing because it hasn’t reached the 70% vaccination needed to slow COVID-19 infections,” said Alan Richardson, senior portfolio manager at Samsung Asset Management (HK) Ltd. “Mass vaccination is the only way to return to sustained re-opening because the virus is endemic.” 

Here’s a cross-asset look at how the virus surge has impacted Southeast Asian markets: 

STOCKS 

Even in an Asian stock market that is lagging global peers, Asean shares stand out for their underperformance. The MSCI Asean Index has fallen more than 5% this year, compared to an about 1% rise in the regional benchmark MSCI Asia Pacific Index. The MSCI AC World Index is up 13%. 

 “We believe further negative GDP revisions are likely,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management in London. “The momentum of our leading indicators puts Thailand, Philippines, Malaysia and Singapore in the bottom half among emerging markets.” 

Underscoring the importance of vaccinations, Singapore’s globally-exposed benchmark is bucking the trend with year-to-date gains of 12%. The island nation has fully inoculated more than 60% of its population. 

BONDS 

Sovereign bonds from Thailand, Philippines and Malaysia have all taken a hit, with local total return indexes down about 1% in dollar terms since the end of June. Investors fear governments will have to incur more debt to curb the latest outbreaks and provide relief to hard-hit businesses and individuals. 

However, there are bright spots. Indonesia last month cut its net bond issuance target for the year, making its higher-yielding notes even more attractive at a time of slumping U.S. yields. The securities have handed investors a return of more than 3% since June 30. 

CURRENCIES 

Malaysia’s ringgit and the Philippine peso have slumped nearly 2% and 3% respectively against the greenback this quarter, while the Thai baht is among the worst-performing currencies in the world after weakening almost 4%. 

Given the large output gaps that are expected to persist in ASEAN economies, “we now expect further depreciation for these currencies in the coming months,” HSBC Holdings Plc analysts including Paul Mackel wrote in a recent note.  

For Alvin Tan, head of Asia currency strategy at RBC Capital Markets in Hong Kong, the strategy now is to set levels at where investors would buy the currencies on further weakness. He recommends selling the dollar against Indonesia’s rupiah at about 14,550 and against Malaysia’s ringgit near 4.30. 

Still, not every asset class has come under pressure. Southeast Asia’s corporate debt has proved resilient against its regional equivalents due to a higher proportion of investment-grade notes and government-backed issuers. The extra yield on Asian corporate dollar bonds over Southeast Asian peers has jumped to the most in at least three years, reflecting a rout in Chinese debt. 

“Given the tighter policy headwinds in China, exposure to ASEAN markets helps to provide some diversification for Asia fixed-income portfolios,” said Sheldon Chan, portfolio manager of T. Rowe Price’s Asia Credit Bond Strategy in Hong Kong. “Despite the threat of virus variants and a slower vaccine rollout on near-term growth prospects, we still remain comforted that the region as a whole remains reasonably well-buffered against external vulnerabilities.” — Bloomberg