Trade deficit hits new record high

By Jochebed B. Gonzales
Senior Researcher
THE COUNTRY’s trade balance posted a fresh record-high shortfall in October as growth of imports continued to outpace that of exports, the government reported on Tuesday.
Preliminary data from the Philippine Statistics Authority showed the October trade deficit at $4.212 billion, bigger than September’s $3.723 billion and $2.585 billion in October 2017.
Import payments rose 21.4% year on year to $10.32 billion in October, easing from September’s 26.1%, but faster than the year-ago 17% growth.
Export sales rose 3.3% year on year to $6.108 billion, accelerating from the 0.8% growth in September, but slower than the 17.4% print in October 2017.

“Exports climbed for a fifth consecutive month in October 2018 amid positive performance of manufactures and forest products,” the National Economic and Development Authority (NEDA) noted in a separate statement.
“Imports from our major trading partners continued to trace an upward trend, while exports improved modestly,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in the NEDA statement as saying.
To date, exports were down 1.2% to $57.067 billion against the downgraded two-percent target of the Development Budget Coordination Committee (DBCC) for full-year 2018.
On the other hand, imports grew 16.8% to $90.985 billion versus the DBCC’s revised nine percent projection for this year.
On a cumulative basis, the balance of trade yielded a $33.918-billion deficit, bigger than the $20.128-billion gap recorded in last year’s comparable 10 months.
Outbound shipment of manufactured goods, which made up 83.7% of total sales in October, grew 5.7% to $5.113 billion. Electronic products, which made up around 53.2% of the total exports, inched up by 0.6% to $3.248 billion.
Forest products were up 28.7% to $30.752 million.
On the other hand, value of exports of agro-based products decreased by 13.7% to $429.584 million, while that of petroleum products and mineral products shrank by 51% ($37.134 million) and 7.1% ($319.972 million), respectively.
On the import side, purchases of major types of goods went up across-the-board.
Imports of raw materials and intermediate goods, which made up 37.7% of total imports in October, increased by 22.2% to $3.892 billion.
Capital goods, comprising 33.6% of the import total, grew 21.2% to $3.466 billion.
Also growing that month were imports of mineral fuels, lubricant and related materials (45.4% to $1.228 billion) as well as consumer goods (7.5% to $1.665 billion).
FUELING FUTURE INVESTMENTS
Economists noted the continued increase of importation of capital goods and raw materials signaled support for investment-led growth.
“[I]mport growth was much higher than expected…” Nomura economist Euben Paracuelles said in a research note, adding that “[t]his was led by capital goods and raw materials imports, while consumer goods imports slowed.”
“Overall, this remains consistent with our view that still strong domestic demand which reflects more infrastructure spending will sustain a large goods trade deficit.”
A similar assessment was made by ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa, who said: “[The] [r]obust import growth is yet another sign that the Philippines has moved into a new chapter in its growth story, requiring a shift in the country’s import dietary requirement.”
“In the past, import growth was driven largely by fuel and consumer goods, with only sporadic flows of capital goods and raw materials outside those used for electronic exports.”
Moving forward, sustained growth of imports is expected to contribute to the widening current account deficit.
“We maintain our forecast that the current account deficit will widen sharply to two percent of GDP (gross domestic product) this year from 0.7% in 2017. For 2019, we expect a more modest current account deficit, widening to 2.2% of GDP,” said Nomura’s Mr. Paracuelles.
“Slower electronics export growth and strong infrastructure-led domestic demand is a potent combination that could push the goods trade deficit wider, but there will be significant offsets next year, in our view,” he said, citing a drop in oil prices, higher overseas worker remittances and improvement in tourist arrivals.
For ING’s Mr. Mapa: “The trade deficit in October of $4.2 billion indicates that the current account will likely remain in the red for the fourth quarter of the year.”
“Imports will likely remain growing at a robust pace as the burgeoning economy needs more and more fuel to drive robust growth from all sectors. We may see a reprieve on the oil bill, given a likely depressed [dollar] value of oil imports, but overall we can see all other import subsectors to post strong growth,” he added.
“Exports, on the other hand, may continue to struggle no matter how much the peso depreciates as we will need to find a way to be generate export competitiveness above and beyond a peso depreciation. In total, we will likely see the trade gap widen, the current account follow suit and the peso to face bouts of weakness in 2019.”