Trade-in-goods gap grows in February

By Mark T. Amoguis
Researcher

THE COUNTRY’s trade-in-goods deficit widened in February as exports contracted while imports grew at a slower pace, the government reported on Thursday.

Preliminary Philippine Statistics Authority (PSA) data showed the February trade deficit at $2.788 billion, wider than February 2018’s $2.537-billion gap.

Import payments rose 2.6% year-on-year to $7.966 billion in February, easing from upticks of 3.6% in January and 13.7% in February 2018.

On the other hand, merchandise export sales went down 0.9% to $5.177 billion in February, versus the 6.7% drop in January and the 1.3% growth recorded in February 2018. The February reading marked the third straight month of export decline following the contractions of 6.7% in January and 12.2% in December 2018.

To date, merchandise exports contracted by 3.9% to $10.456 billion against the six percent growth goal of the interagency Development Budget Coordination Committee (DBCC) for full-year 2019.

On the other hand, import of goods grew 3.1% to $17.165 billion on a cumulative basis against the DBCC’s nine percent projection for the year.

Consequently, this brought the year-to-date trade deficit to $6.708 billion, bigger than the $5.763-billion shortfall in 2018’s comparable two months.

Electronic products, which made up more than half of the country’s exports, grew by 0.8% to $2.817 billion in February, with semiconductors contributing $2.004 billion, down 2.1% from $2.048 billion a year ago.

Outbound shipments for manufactured goods, which accounted for 83.3% of total exports, went down 2.4% to $4.313 billion from $4.418 billion in February 2018.

Exports of petroleum products were also down 66.7% to $5.417 million from last year’s $16.247 million.

On the other hand, agro-based products grew by 6.5% to $327.494 million.

Exports of forest and mineral products likewise grew by 73.2% to $28.874 million and 4.2% to $361.193 million, respectively.

On the import side, purchases of mineral fuels, lubricant and related materials posted the highest growth at 15.5% to $941.349 million.

This was followed by imports of capital goods, which registered an 11.5% growth in February to $2.752 billion.

Dragging import growth in February were declines in raw materials and intermediate goods at 6.3% to $2.9 billion and consumer goods at 1.4% to $1.32 billion.

In a note e-mailed to reporters, HSBC Global Research economist Noelan Arbis said February’s $2.788-billion deficit was narrower than January’s $3.920 billion, but attributed this to seasonal effects, hence, it does not mark a “structural shift.”

“We believe today’s narrower trade balance is partly due to seasonal effects, as imports from China declined sequentially due to Chinese New Year, and (most importantly) a continued impasse on the 2019 government budget,” he said.

In a statement, the National Economic and Development Authority (NEDA) said that the government remains firm in improving trade relations to “weather headwinds in the global export market.” For instance, the agency cited the Trade department’s talks with the United Kingdom, Hungary and the Czech Republic to strengthen bilateral economic relations as well as the country signing a memorandum of understanding with Indonesia as a potential market for Philippine bananas and coconut-based products.

“For the recovery in exports performance, facilitating easier movement of goods is crucial,” NEDA Officer-in-Charge and Undersecretary Adoracion M. Navarro was quoted in the NEDA statement as saying.

The economists interviewed shared similar sentiments, noting that the country needs reforms and strategies in order to improve its trade prospects.

“Even before the uncertainties brought by the trade issues between the US and China, Philippine merchandise exports have been on a decline, needing a boost in better strategy and innovation — a road map to improve its prospects,” Union Bank of the Philippines, Inc. (UnionBank) chief economist Ruben Carlo O. Asuncion said in an e-mail.

“This year, the generally negative perception on the impact of the trade impasse between China and the US has been a huge factor. In addition, the overall sentiment that global growth is slowing down has also contributed to the trade activity decline.”

In a separate e-mail, ING Bank NV Manila senior economist Nicholas Antonio T. Mapa said: “[W]e will need true sector reform to help build stable supply chains and identify key growth export sectors as opposed to relying on electronics, which may have a very low value added to the economy.”

Moving forward, economists said that meeting the government’s trade targets for this year would be challenging given the ongoing US-China trade war and the delayed enactment of the national budget for 2019.

“With the impasse on passing the budget, government targets may not be achieved this year. Import numbers have already shown the result of this sorry delay last February,” UnionBank’s Mr. Asuncion said.

“Spending on infrastructure may pick up when the budget is finally signed by [President Rodrigo R.] Duterte. The next half of 2019 may see a growth rally in imports particularly.”

For ING’s Mr. Mapa: “Exports will likely be challenged given the prospects for global trade, in light of the US-China trade tensions and thus the 6% target is achievable, but may also be hard pressed to attain.”

Mr. Mapa said that imports will grow, but not as fast as the double-digit growth seen previously.

“The slowdown in capital goods imports… reflect the ill effects of higher borrowing costs and the possible end of the business investment cycle,” Mr. Mapa said.

“Meanwhile, the contraction seen in the raw materials subsector can be traced to the contraction in construction materials due to the budget delay and weakness in raw materials…”

To recall, the Bangko Sentral ng Pilipinas hiked policy rates by a cumulative 175 basis points last year to temper inflation expectations after prices of widely used goods and services jumped to as high as a nine-year-high 6.7% in September and October last year.

Mr. Duterte is scheduled to sign the 2019 General Appropriations Act after the Holy Week break. The government has been running on a reenacted 2018 budget since the start of the year, leaving new projects unfunded in the first semester, which is ideal for infrastructure work ahead of the rains in the second half.