THE COUNTRY’s trade-in-goods deficit narrowed in July as merchandise exports grew at their fastest pace in nine months while imports declined, the Philippine Statistics Authority (PSA) reported on Tuesday.

Preliminary PSA data showed July’s trade deficit at $3.393 billion, compared to a $4.016-billion gap in the same month last year.

Philippine trade year-on-year performance (July 2019)

The value of goods sold abroad grew by 3.5% to $6.174 billion in July, faster than 3.3% in June and 2.3% in July 2018.

On the other hand, import payments fell 4.2% year-on-year to $9.567 billion in July, improving from a 10.4% decline observed in June albeit a reversal from the 39.8% growth in July 2018.

July marked the fourth straight month of growth in export goods and was the fastest in nine months or since the 6.7% growth in October 2018.

Meanwhile, the country’s total external trade in goods — the sum of export and import goods — was $15.742 billion in July, 1.3% less than the $15.949 billion total in same month last year.

To date, merchandise exports are up 0.1% to $40.391 billion against the two-percent growth target of the Development Budget Coordination Committee (DBCC) for full-year 2019.

On the other hand, the merchandise import bill declined 1.5% to $62.685 billion on a cumulative basis against the DBCC’s seven-percent projection for the year.

That brought the year-to-date trade balance to a $22.294-billion deficit, smaller than the $23.251-billion gap in 2018’s comparable seven months.

According to a statement by the National Economic and Development Authority (NEDA), the Philippines registered the third-fastest growth in exports among select Asian economies in July, next to Thailand and Vietnam. “Philippine exports remained resilient during the second quarter of 2019 despite the continuing external challenges such as trade tensions between the US and China, the bleak outlook in Europe, and the uncertainty of the future of Brexit,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in the NEDA statement as saying.

In separate e-mails, ING Bank N.V. Manila senior economist Nicholas Antonio T. Mapa and Security Bank Corp. chief economist Robert Dan J. Roces noted the growth in electronic exports, which accounted for 55.6% of the country’s export sales in July.

Exports of electronic products grew 2.9% annually to $3.433 billion in July from $3.335 billion in July last year. Electronics accounted for 55.6% of total export goods and 66.2% of manufactured goods.

Year-to-date, electronics sales grew 1.1% to $22.379 billion from $22.133 billion in 2018’s first seven months.

“Interestingly, it was these exports to the US that helped us clear a [fourth-straight] month of gain, with products probably imported from China [and] re-exported to the US as manufacturers [are] getting creative on how to skirt tariffs,” ING Bank’s Mr. Mapa said.

For Security Bank’s Mr. Roces, the country is said to be “picking up some slack” in terms of demand for semiconductors, which grew 2.4% to $2.488 billion in July. Semiconductors make up 72.5% of electronic products and 40.3% of total exports.

Among major types of goods, manufactured goods exports increased 4.2% to $5.185 billion from $4.975 billion in the same month last year. This was followed by exports of agro-based products, which saw an 11.7% growth to $413.401 million in July from last year’s $370.222 million.

Exports of forest and mineral products likewise increased by 50.6% and 12.2%, respectively, to $31.113 million and $421.721 million.

On the import side, payments for raw materials and intermediate goods dropped 11.7% to $3.447 billion from last year’s $3.902 billion. Likewise, imports of mineral fuels, lubricant and related materials fell 14.5% to $1.114 billion from $1.303 billion

Bucking the trend were imports of capital goods and consumer goods, which grew by 3.4% (to $3.273 billion) and 7.6% ($1.659 billion).

“[The decline in imports of raw materials and intermediate goods] moves directly in line with the budget impasse as construction materials such as iron, steel and non-ferrous metals contracted,” said ING’s Mr. Mapa.

The economist also cited the 10% drop in raw materials used for electronics, “which could mean that the fledgling export growth trend could peter out.”

On the other hand, Security Bank’s Mr. Roces noted the slower contraction in imports in July compared to that of June, which is “consistent with the turnaround in government spending…”

Data from the Treasury bureau showed a P75.3-billion fiscal deficit in July, 12.8% smaller than the P86.4 billion in July last year. However, July’s fiscal deficit compared with the P41.8-billion deficit in June as well as the fiscal surpluses of $86.872 billion and $2.564 billion in April and May, respectively.

Analysts have blamed the recent decline in imports and government spending to the delay in the passage of the 2019 national budget. To recall, the government operated on a reenacted 2018 budget from January to April 15, when President Rodrigo R. Duterte signed this year’s national budget into law four months late, but vetoed P95.3 billion in funds that were not in sync with his administration’s priorities.

“For the rest of the year, we expect trade deficit to widen as import demand starts to pick up,” Security Bank’s Mr. Roces said moving forward.

For ING Bank’s Mr. Mapa: “We could see a rebound in capital goods imports as the BSP (Bangko Sentral ng Pilipinas) cuts policy rates and boosts investment activity.”

The BSP has cut benchmark interest rates by a total of 50 basis points (bp) so far this year, partially dialing back the 175-bp cumulative hikes triggered last year by successive multi-year high inflation that peaked at a nine-year high.

Meanwhile, JPMorgan Chase Bank NA Singapore Branch economist Nur Raisah Rasid said in a note that a “gradual” recovery in capital expenditures (capex) is underway this quarter given the July turnout, but noted “seasonal weather issues” as a downside risk to the country’s infrastructure and capex recovery.

“Thus, we continue to watch capital goods imports to determine the direction of the capex trend,” Ms. Rasid said.

NEDA’s Mr. Pernia said that the effects caused by the ongoing trade tensions between the US and China are “beginning to show” through decreased global manufacturing sentiment, but remained hopeful on the country’s manufacturing sector. Of note, manufactured goods make up 84% of total exports.

“We are optimistic as we see a reduction of global oil prices, the recent cuts in electricity rates, and the lower import costs due to the appreciation of the peso,” said Mr. Pernia, adding that this resiliency may “find relevance” in attracting foreign investments as investors are seeking alternatives to China, where goods are subject to increasing US tariffs. — Lourdes O. Pilar