PH trade deficit to stay near term – analysts

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The country’s trade balance will remain in deficit territory near-term as weak external demand hampers exports growth amid robust imports, analysts said.

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Fitch-owned BMI Research and banking giant Standard Chartered Bank have penned a wider trade deficit would place a drag on the current account surplus.

However, there are enough buffers to offset the trade imbalance.

“We expect the Philippines’ trade deficit as a share of GDP [gross domestic product]to widen from last year as weak external demand from the US, Japan, and China is likely to continue to weigh on the export sector, while strong domestic demand and investment will likely sustain the strong import growth momentum,” BMI said in a recently released report.

The trade deficit reached $15.81 billion last year, shaving off 6 percent from the total GDP.
In the first half of 2016, the trade deficit stood at $11.4 billion or 8.7 percent off the GDP.

The central bank has said a wider trade deficit may pull down the current account surplus, a major component of the country’s balance of payments.

The January to June current account surplus, a result of a wider trade in goods deficit, was narrower by 85.2 percent from $5.25 billion a year earlier.

The current account consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.

BMI noted the deterioration of Philippine external accounts should not be a major cause for concern as the archipelago boasts of strong macroeconomic fundamentals, while a healthy foreign reserves buffer and resilient remittance inflows will help preserve stability over the coming quarters.

Meanwhile, Standard Chartered Bank believes the impact of high capital goods imports and subdued global demand on merchandise trade is quite evident.

“In the medium-term, we believe that import growth, particularly of capital-goods imports, will likely stabilize,” Chidu Narayanan, StanChart economist for Asia, said Friday.

Narayanan noted that capital goods are the Philippines’ largest imports, accounting for 33.7 percent of all imports (8.7 percent of GDP) so far this year, up from 24.7 percent in 2014. The first nine months of 2016 saw a 45 percent year-on-year increase in capital goods imports.

“We still forecast that the current account will remain in a surplus this year, albeit smaller than expected earlier. We expect a smaller surplus on higher capital-goods imports,” he added.

The economist said crude oil imports has accounted for 3.6 percent of all imports (0.9 percent of GDP) in 2016 so far, down from 12.1 percent in 2012.

“We estimate that every $10 increase in crude prices reduces the current account contribution to GDP by 0.3 percentage point. Crude oil prices are forecast to average in the high $60s in 2017; this should reduce the current account balance even more,” he added.

Nevertheless, support from services exports and steady remittance growth will likely offset the larger-than-expected deficit in goods trade.

On Wednesday, the government reported the Philippine trade deficit expanded by 45.9 percent at $1.89 billion in September from a year earlier as the surge in imports continue to outpace the rebound in exports.

The 5.1-percent year-on-year growth in export sales was surpassed by the 13.5- percent rise in imports. Export receipts reached $5.21 billion in September, while import payments totaled $7.10 billion.

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