PH trade deficit widens as exports growth slows

PH trade deficit widens as exports growth slows

Manila, Philippines – THE country’s trade deficit widened in January from a year earlier but the gap was narrower when reckoned from December, the Philippine Statistics Authority (PSA) reported on Friday.

Inbound shipments rose by 11.4 percent year-on-year to $8.536 billion, PSA data showed, while exports grew at a slower pace of 0.5 percent to $5.219 billion.

The total trade in goods balance hit a deficit of $3.317 billion for January, higher than the $2.469 billion recorded a year earlier but down from the previous month’s $3.839 billion.

Analysts expect the gap to further widen moving forward.

Imports, said Land Bank of the Philippines economist Guian Angelo Dumalagan, were being fueled by strong investment spending.

He noted that capital goods imports, which comprise about 32 percent of total imports, had risen by 16.9 percent.

“This suggests that businesses in the country are optimistic about the country’s growth prospects amid the government’s tax reform and infrastructure programs,” Dumalagan said.

Exports, meanwhile, slowed due to weaker demand from a handful of countries, including major trading partners
such as the United States, Singapore, South Korea and the Netherlands.

“Given [the]current trend, it seems that the country’s trade deficit may continue to widen in the next few months.
However, there is reason to believe that exports will recover towards the end of the year, driven by improving conditions in major economies abroad,” Dumalagan said.

Suhaimi Ilias, regional head for economic research at Maybank Kim Eng, said exports growth had “suffered” from base effects given the 22-percent jump in January 2017.

Sustained import growth, meanwhile, indicates robust domestic demand, especially with capital goods imports pointing to renewed infrastructure investments.

“Expect [the]trade balance to worsen further to $36.5 billion (2017: $29.8 billion) on 4.5 percent export growth and 40.5 percent import growth,” he said.

Ilias added that a worsening trade deficit, and by extension current account balance, would put further pressure on the peso amid ongoing portfolio capital outflows.

Together with a surge in inflation to above 4 percent in the early months of 2018, he said that these should prompt the Monetary Board into hiking interest rates by 25 basis points during its March 22, 2018 policy meeting.

The National Economic and Development Authority, for its part, called for a focus on developing agribusinesses as the exports slowdown was led by non-electronic and agro-based commodity sales.

The 0.5 percent growth result, it noted, was the slowest since December 2016.

“With the global economy still set for a higher growth trajectory in 2018, the Philippines is off to a good start.

However, it is essential for the national government to continue on its initiatives to support exports growth,” Socioeconomic Planning Secretary Ernesto Pernia said in a statement.

He said the government was targeting 8-percent growth in merchandise exports for 2018, supported by a revival of the agribusiness sector.

“To achieve this, the Philippines needs to build up integrated industries that would generate higher value addition, especially for key products such as bananas, cacao, coffee, mangoes and rubber as well as for other emerging high value crops,” Pernia said.

Both large and small producers have to be supported and niche markets such as organic farming should be developed to fully harness agriculture’s potential, he added.

Diplomatic posts can play a big role by regularly providing relevant information on emerging products the Philippines can supply.

“Moreover, greater market access can be achieved through bilateral and multilateral deals, such as continued exploratory talks of the Department of Trade and Industry with the United States for a foreign trade agreement or an extension of the US Generalized System of Preference initiative, which expired last year,” Pernia noted.

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