Trade gap widens on import surge

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By Carmina Angelica V. Olano, Researcher

FLAT merchandise export sales and inbound foreign goods’ continued surge caused the country’s trade gap to widen further in July, the Philippine Statistics Authority (PSA) reported on Tuesday, putting more pressure on the peso that has lately been hitting its weakest level in nearly 13 years (Read article here).

The value of merchandise exports grew by just 0.3% annually to $5.851 billion in July, according to PSA’s preliminary data. This was slower than the 2.8% growth in June and 21.9% in July 2017.

On the other hand, July import payments increased to its fastest pace so far this year with a 31.6% growth to $9.397 billion compared to June’s 24.2% rise and the 0.3% decline in July 2017.

Philippine trade year-on-year performance (July 2018)


Consequently, the country’s trade deficit expanded to $3.546 billion in July, wider than June’s $3.188 billion and $1.305 billion in July 2017.

To date, merchandise export sales shrank 2.8% to $38.744 billion from $39.869 billion in the same seven months last year while imports increased by 15.7% to $61.234 billion versus last year’s $52.923 billion.

Under the government’s program, exports and imports of goods have been targeted to grow by nine percent and 10%, respectively, this year.

On a cumulative basis, the balance of trade yielded a $22.49-billion deficit, 72.3% bigger than the $13.055-billion trade gap recorded in January-July 2017.

Outbound manufactured goods, which made up 83.4% of total sales in July, dipped 0.3% to $4.882 billion, although electronic products, which made up around 56% of total exports, rose 5.2% to $3.276 billion.

Outbound shipments of agro-based products likewise dropped by 5.4% to $386.103 million while those of petroleum products plunged 75.9% to $12.484 million.

Bucking the trend were exports of mineral products (4.3% growth to $373.603 million) and forest products (130.8% to $24.488 million).

Meanwhile, the July import print marked the fourth straight month of double-digit growth.

Purchases of raw materials and intermediate goods, which made up 36.8% of total imports that same month, grew 28.3% to $3.457 billion.

Likewise, capital goods, comprising 33.9% of the import total, grew 38.9% to $3.183 billion.

Also growing that month were imports of consumer goods (22% to $1.561 billion), as well as mineral fuels, lubricant and related materials (35.8% to $1.142 billion).

“As the global trade situation becomes less encouraging, improving the overall climate for export development becomes all the more indispensable…” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in a statement of the National Economic and Development Authority, which he heads as director-general.

“Trade war fears have weighed on business sentiment, and we now see softer global activity. With a resolution unlikely in the short term, the dispute is expected to dampen growth in both economies and drag down growth in the wider global economy.”

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. (RCBC), said that the slowdown in exports was due mainly to base effects from a double-digit growth a year ago alongside effects of a broader US and China trade war.

“Prospects of a wider trade war between the US and China — the world’s two largest economies and among the biggest export market of the Philippines — also partly caused the slower growth in Philippine exports,” Mr. Ricafort said.

US President Donald J. Trump considered imposing further tariffs on another $200 billion worth of Chinese imports. This is on top of the tariff on $50 billion of Chinese goods already imposed earlier, of which China responded in kind on US goods.

Furthermore, Mr. Ricafort attributed the faster import growth in July to the “increased importation requirements of the Philippine economy.”

“[The country] is still among the fastest-growing in Asia in terms of increased demand for capital equipment, raw materials, and finished goods, some of which may be for productive purposes amid the record high foreign direct investments in recent years…” he said.

Despite the flat merchandise export performance, analysts were upbeat on growth prospects of the sector for the year despite risks.

“At least our country’s exports [performance] is able to maintain a positive growth for the last two months despite starting the year on the negative side. This can be the trend for the rest of the year. Hopefully, [it is] higher,” Philippine Exporters Confederation, Inc. president Sergio R. Ortiz-Luis, Jr. said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, shared this optimism saying: “Exports are expected to improve in [the second-half of 2018] with the Christmas season anticipated to drive demand higher.”

At the same time, Mr. Asuncion noted “possible risks” with the escalation of the US-China trade war.

“Although the impact on the Philippines is uncertain, the certainty that the Philippines is interconnected to global trade particularly with the US and China… cannot be denied,” he said.

For RCBC’s Mr. Ricafort, “export growth could still improve in the coming months, with the expected pickup in electronic exports… amid the country’s increased imports of electronics… that may be further processed for re-export, as well as the faster economic growth in the US… a major market for Philippine exports.”

However, “Philippine exports that are part of the supply chain in the production of Chinese exports to the US and the production of US exports to China would experience lower sales in both countries,” Mr. Ricafort cautioned.

The US was the Philippines’ top export market in July with a 16.6% share at $972.52 million, followed by Hong Kong’s 14.7% ($859.98 million) and Japan’s 13.7% ($799.02 million) market shares.

The same month saw China as the Philippines’ top source of imports with a 19.8% share ($1.859 billion) followed by South Korea’s 10% ($936.49 million) and Japan’s 9.7% ($911.48 million).