Global demand weak but PH imports strong
The Philippines’ trade deficit swelled 93 percent in August from a year earlier as exports continued to decline while imports surged, government data showed on Tuesday.
Economists see external demand remaining weak as global economies struggle to gain momentum, but expect local consumption to gain further strength as the Philippine economy continues to grow.
“The balance of trade in goods (BOT-G) for the Philippines in August 2016 registered a deficit of $2.023 billion, higher than the $1.048 billion trade deficit in the same month last year,” the Philippine Statistics Authority (PSA) said in a statement released with the trade data.
Export sales in the month fell 4.4 percent year-on-year to $4.904 billion from $5.128 billion, while total imports rose 12.2 percent to $6.927 billion from $6.176 billion.
The trade gap in August, however, was narrower than the $2.058 billion deficit recorded in July this year.
Global market weak, except EAsia
In a statement, the National Economic and Development Authority (NEDA) said exports to East Asia, particularly Hong Kong, China and Taiwan, posted increases and exports to France and Switzerland continued to post double-digit growth rates, 78.1 percent and 68.6 percent, respectively.
This cushioned the decline in receipts from the Philippines’ other trading partners, the agency said.
Among merchandise exporters, commodity groups such as manufactures, agro-based products, and petroleum products posted negative growth rates, official data shows.
The PSA traced the decrease in exports to seven major commodities out of the top 10 export commodities for the month.
These include machinery and transport equipment (-52.5 percent); metal components (-25.9 percent); chemicals (-16.2 percent); articles of apparel and clothing accessories (-11.3 percent); other manufactures (-9.3 percent); woodcrafts and furniture (-8.8 percent); and coconut oil (-6.9 percent).
However, mineral products, which grew 10 percent in the period, and electronics, which grew by 11.6 percent, mitigated the decline in total outbound shipments for August.
Nonetheless, the NEDA noted that the decline in exports for August 2016 was slower than the double-digit declines observed in June (-11.4 percent) and July (-13 percent).
Looking at new markets
Given the sluggish external environment, the country should focus on diversifying its export markets and improving productivity and competitiveness of industries, NEDA Officer in Charge and Deputy Director General Rosemarie Edillon said.
“With traditional export markets such as Japan and the United States still showing weak appetite for Philippine exports, new markets should be explored,” she said.
Edillon urged exporters to tap new markets such as Russia and Kazakhstan, which are being eyed as potential destinations for agriculture and industrial products. She also urged them to tap emerging markets like Kuwait, Mongolia, and Malaysia.
“We also need to shift to high-value crops as potential agricultural exports. This can be done if we improve agricultural productivity through investments in modernization efforts, infrastructure, and research,” she said.
Consumer goods imports strong
The NEDA said double-digit growth of merchandise imports in August can be attributed to hefty increases in consumer goods, which grew by 59 percent, and capital goods, which grew by 29.9 percent.
The PSA said imports growth was due to the positive growth rates of seven out of the top 10 major imported commodities for the month led by transport equipment (103.2 percent).
The other six were: miscellaneous manufactured articles (65.4 percent), plastics in primary and non-primary forms (59.9 percent), organic and inorganic chemicals (45.6 percent), other food and live animals (34.8 percent), industrial machinery and equipment (29.2 percent), and telecommunication equipment and electrical machinery (12.7 percent).
Also, products of neighboring Asian economies drove up the country’s import payment. Hefty increases in imports from Indonesia, Thailand, China, Japan, South Korea, Hong Kong, and India were observed, the NEDA added.
Edillon stressed that strong domestic activity is expected to underpin demand for imports for the latter part of this year.
“The government should maintain a conducive environment for growth and continue addressing logistical bottlenecks to ensure the smooth flow of trade,” she said.
“The outlook for the trade deficit remains unfavorable, with weak external demand expected to continue to create significant headwinds for the export sector,” said IHS Markit, Asia-Pacific chief economist Rajiv Biswas.
Nevertheless, he said domestic demand is expected to remain strong, an indication that the overall merchandise trade balance will continue to record significant deficits in the near-term.
Biswas pointed out that the August trade data showed buoyant growth in consumer goods imports, reflecting sustained strength of private consumption, while capital goods imports were also strong, indicating rapid expansion in investment.
Somewhat higher average world oil prices are also expected to add to the overall import bill for the last quarter of 2016 and calendar 2017, he added.
“While the widening trade deficit does imply that net exports will be a greater drag on GDP [gross domestic product]growth, the overall momentum of GDP growth is being boosted by the strength of domestic demand, which will continue to underpin strong economic growth in the second-half 2016 and in 2017,” the economist said.
“With the Philippines’ economy growing at a pace of around 6.9 percent in the first-half of 2016 and expected to achieve annual GDP growth of around 6.5 percent for calendar 2016, domestic consumption is expected to continue to boost exports,” he added
For the first eight months of 2016, the country’s trade gap widened by 148 percent to $15.995 billion from $6.438 billion a year earlier.
Total merchandise exports from January to August registered a 7.8 percent decline to $36.409 billion from $39.500 billion in the corresponding period in 2015.
Cumulative imports for eight months to August amounted to $52.404 billion, an increase of 14.1 percent from $45.938 billion during the same period of last year.
With this, the PSA also reported that total trade in August grew 4.7 percent to $11.83 billion from $11.3 billion a year ago, pushing the eight-month tally to $88.814 billion.