Trade deficit narrows in December

By Marissa Mae M. Ramos
Researcher
THE COUNTRY’s trade-in-goods deficit narrowed in December to the smallest in three months as merchandise imports fell for the first time in 17 months, although this did not prevent the full-year gap from surging faster than in 2017, according to data the Philippine Statistics Authority (PSA) released on Tuesday.

In a preliminary report, the PSA said merchandise exports dropped 12.3% to $4.721 billion in December — marking the biggest fall in 11 quarters or since the 13% decline in March 2016 — from $5.384 billion in December 2017, and were similarly down 15% from $5.569 billion in November.
For full-year 2018, merchandise exports were down 1.8% to $67.488 billion from $68.713 billion in 2017. This was below the two-percent target set by the Development Budget Coordination Committee (DBCC).
On the other hand, the merchandise import bill fell by 9.4% to $8.473 billion in December from $9.356 billion in the same month in 2017.
The import decline was the first since July 2017’s 0.3% and was the largest in 3 years, or since December 2015’s -26%.
For the year, merchandise imports rose by 13.4% to $108.928 billion from $96.093 billion in 2017, topping the DBCC’s nine-percent projection for the year.
These flows brought the country’s trade deficit to $3.752 billion in December, 5.5% smaller than the year-ago $3.972 billion. It was also the smallest trade gap in three months.
Meanwhile, the country’s total external trade in goods — or the sum of export and import goods — shrank 10.5% to $13.194 billion in December, marking the weakest activity in three years, or since the 15.15% plunge in December 2015.
Cumulatively, the country’s trade balance posted a record-high $41.440-billion deficit in 2018, 51.3% more than the $27.380 billion recorded in 2017 which itself saw a 2.5% increase.
The export of manufactured goods, which made up 84.8% of total sales in December, went down 13.2% to $4.002 billion from $4.610 billion in the same month in 2017.
The bulk of the decline was seen in electronic products, which made up around 57.2% of the total exports, plunged 15.2% to $2.703 billion from $3.186 billion. Full-year 2018 saw sales of these products edge up just 2.8% to $37.569 billion.
Mineral products (-42.8%) and petroleum products (-59.8%) registered sharp declines as well during the month.
Bucking the trend were growth in the export of agro-based products (40.1%) and forest products (0.8%).
For imports, capital goods — which accounted for 33.6% of total imports — declined 10.6% to $2.846 billion. Meanwhile, raw materials and intermediate goods — with a 36.3% share — went down by 5.8% to $3.075 billion from $3.266 billion.
Imports of consumer goods and mineral fuels, lubricant and related materials were also down, contracting 12.1% (to $1.351 billion) and 14.4% (to $1.137 billion), respectively.
HEADWINDS
In a statement, the National Economic and Development Authority (NEDA) attributed the trade performance in December to “external headwinds.”
“Merchandise trade in all the monitored Asian economies continued to weaken in the last month of 2018 as the region began to feel the impact of the weakening Chinese economy and the US-China trade tension,” Socioeconomic Planning Secretary Ernesto M. Pernia, who is NEDA’s director-general, was quoted in the agency’s statement as saying.
“Policy uncertainty remains a threat to global trade, investment, and output, especially as US-China trade tensions continue,” Mr. Pernia said, adding that the government should continue to work on legislative reforms that will open up the economy further to foreign investment in areas like retain trade and utilities.
Department of Trade and Industry (DTI) Secretary Ramon M. Lopez told reporters in a mobile pone message that “[Since the Philippines] as well as 10 other Asian economies, suffered from an export decline in December, it is quite apparent that the downward trend in exports was brought about by softening global demand induced by global growth slowdown as well as increased uncertainty amid escalating US-China trade tensions.”
“Electronics supply chain in the region was adversely affected as lower orders from one country can lead to lower orders in other supplier countries.”
The country’s non-electronics exports, he said, were “still affected by production capacity issues.”
For Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), external developments like the US-China trade war, the 35-day US government shutdown, the slowdown of China’s economic growth and Brexit concerns “may have also led to some slowdown in Philippine trade with the rest of the world.”
ERODED INVESTMENT MOMENTUM
On the local front, Mr. Ricafort cited last year’s elevated domestic inflation and the raising of interest rates by the Bangko Sentral ng Pilipinas (BSP) as factors that may have led to lower demand for imports as well as lower production by exporters.
For ING Bank N.V Manila senior economist Nicholas Antonio T. Mapa, December’s trade data showed a “surprise contraction in capital goods imports and raw materials, which could signal that the recent tightening of the BSP is starting to bite into investment momentum.”
“With more than [a] 15% drop in electronics exports, this posed a drag on overall exports while all other subsectors of outbound shipments were also in contraction. This could mean that the ongoing trade spat between superpowers is starting to feed into our supply chains,” Mr. Mapa added.
Economists expect the trade deficit to persist this year.
“The sustained drag of net exports will be noted in 2019 as exports fail to even get close to our import numbers,” said ING’s Mr. Mapa, adding that this could affect economic growth for the year through a decline in capital formation if import growth “continues to be skewed less to capital goods”.
“Overall, we’d likely see [a] slight narrowing of the trade gap, but still quite substantial to drive a current account deficit,” he added.
“For 2019, we expect imports to grow by single digits but not likely to see extremely strong growth from inbound shipments as a whole…”
“Exports, on the other hand, are expected to remain lackluster given the fears about a global slowdown in trade, once again owing to the US-China trade spat.”
For RCBC’s Mr. Ricafort, “increased government spending, especially on mega infrastructure projects under the Build Build Build Program… could still sustain the country’s relatively wide trade deficit for 2019, though this may [be] offset by the decline in global crude oil prices that still linger among the lowest levels in more than a year…”
Despite such headwinds, DTI Assistant Secretary Angelo B. Taningco said in a recent interview that the department targets growth of foreign sales of goods and services to be at an “achievable” 9-10% on the back of improved factory output.
DTI chief Lopez said separately: “[W]e reiterate our views to focus efforts… in building our capacities for a more robust, innovative, competitive manufacturing sector that will allow us to do more import substitution as well as improve our export performance in the long term…” — with Janina C. Lim