Trade deficit swells as imports surge

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A sign of robust economy and infrastructure projects – NEDA

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THE trade deficit of the Philippines in the first five months of this year tripled in size to $9.81 billion from $3.33 billion a year earlier, with a sharp increase in imports seen as a sign of robust economic growth.

Cumulative imports for the five-month period surged 18.2 percent to $31.89 billion from $26.97 billion a year earlier.

In May alone, imports increased by 39.3 percent year-on-year—the fastest in 22 years—to total $6.736 billion in value. The month’s trade balance, a deficit of $2.02 billion, was slightly narrower than the revised $2.3 billion in the previous month, but in sharp contrast with the $65 million surplus in May 2015.

Despite the phenomenal expansion of the trade deficit, the National Economic and Development Authority (NEDA) said the increase in imports is a clear signal of the domestic economic conditions remaining robust and the country focusing on infrastructure development.

“With its current upward trend, we expect investments and consumption to drive growth for the rest of the year,” said the socioeconomic planning secretary, Ernesto Pernia.

Electronic products, the top import item in May, registered a 44.5 percent increase from the year earlier to total $1.67 billion and claimed a 24.8 percent share of the month’s total imports.

Among other leading imports marking year-on-year increase were transport equipment (up 108.6 percent to $703.61 million), power generating and specialized machinery (up 96.7 percent to $151.98 million), industrial machinery and equipment (up 79.5 percent to $495.38 million), plastics in primary and non-primary forms (up 79.3 percent to $196.54 million), telecommunication equipment and electrical machinery (up 77.7 percent to $193.79 million), miscellaneous manufactured articles (up 45 percent to $185.87 million), other food and live animals (up 33.7 percent to $299.94 million), and iron and steel (up 28.3 percent to $289.67 million).

According to NEDA, among 11 selected Asian countries, only the Philippines posted double-digit growth, while other countries declined.

Against the sluggish import activities in the region, Pernia said, “we must focus on fast-tracking the country’s infrastructure development to support the growth of our economy and improve our absorptive capacity for investments.”

Joey Cuyegkeng, senior economist at ING Bank Manila, pointed out that higher imports and wider trade deficit could lead to a weakening of the local currency.

According to NEDA, the increase in local demand for capital and consumer goods drove imports growth in May.

By commodity groups, the agency said that import of capital goods nearly doubled its growth in May by posting a 99.9-percent increase, continuing on its double-digit growth path for the ninth consecutive month and the 16th consecutive month of positive growth.

Similarly, import of consumer goods increased by 47.2 percent to $1.2 billion in May due to higher spending on both durable goods (92.4 percent) and non-durable goods (15 percent), driven by the higher demand for passenger cars and motorized cycles during the period.

Commenting on the import of motor vehicles while the country suffers from perennial traffic congestion, Pernia said that on the upside, the high domestic demand for vehicles could be a source of growth if firms located in the country could participate in the manufacture of the parts and components or even a complete car model.

China is a major source of imports. However, imports from Japan increased by 122.7 percent, driven by growing demand for power-generating machines, telecommunications equipment and electrical machinery, followed by the United States, Thailand, South Korea, Taiwan, Singapore, Indonesia, Malaysia and Hong Kong.

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