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May trade gap widest so far for 2018

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MERCHANDISE exports slid for the fifth straight month in May while imports grew further, albeit at a slower pace, driving the trade deficit to its widest level so far this year, according to latest trade data the government released on Tuesday.

Preliminary data from the Philippine Statistics Authority (PSA) showed merchandise exports declining 3.8% to $5.762 billion in May, improving slightly from the 4.9% contraction seen in April but still a reversal from the 24% growth recorded in May 2017.

The latest merchandise export figure brought year-to-date sales to $26.914 billion, down five percent from $28.33 billion in 2017’s comparable five months and further away from an official nine percent growth target for 2018.

By major type of goods, manufactured goods — which made up 83.8% of the country’s total outbound shipments — declined 2.7% to $4.830 billion.

Also recording declines in May were exports of mineral products (-6.9%), agro-based products (-23.2%) and petroleum products (-66.6%) to $374.781 million, $363.978 million and $9.673 million, respectively.

Philippine Trade Year-on-Year Performance_071118

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank), said that the decline in exports in May was expected given “softer” overseas sales so far this year.

“However, it is fitting to note that the country’s top export, electronic products, has actually increased by 2.3% [to $3.133 billion]. This may be a sign of a positive recovery… “ Mr. Asuncion said, noting that May was “so far the best month” for exports.

Cumulatively, exports of electronic products have been up by 3.1% to $14.883 billion. This is compared to manufactured goods, which logged a 4.7% decline in the same five months.

DEFICIT CONTINUES TO WIDEN
The country’s trade gap widened by 47.6% to $3.701 billion in May from $2.507 billion a year ago as import payments rose 11.4% to $9.462 billion that month, albeit slower than the 23.1% growth in April and 20.2% in May 2017.

May’s trade deficit marked the biggest gap so far this year and was the highest since December 2017’s $3.972 billion.

Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said that the slower import growth during the month may be due to the weaker peso exchange rate versus the dollar and higher prices of global commodities including crude oil.

“Weaker peso and higher oil [and other] commodity prices made imports more expensive from the point of view of local buyers, thereby resulting in some reduction in import demand growth,” he said.

Year-to-date, the country’s balance of trade posted a $15.766-billion deficit, compared to the $10.164-billion gap recorded in 2017’s comparable five months.

Merchandise imports grew 10.9% in January-May, above the government’s 10% target.

Comprising 36.7% of the total import bill in May, the value of imported raw materials and intermediate goods increased 4.3% to $3.476 billion.

Capital goods, which accounted for 33.4%, rose 10.1% to $3.163 billion.

Consumer goods, with a 16.1% share, went up 11.6% to $1.525 billion, while mineral fuels, lubricants and related materials picked up 41.6% to $1.257 billion.

PROSPECTS
Economists expect exports to recover somewhat in the coming months, but still project the trade deficit to remain elevated due to sustained import growth.

“Exports could start to grow again in the coming months [at] around 1-2% growth in June 2018 amid the pick up in the US/global economy. The weaker peso exchange rate could make Philippine exports more price competitive from the point of view of international buyers and could support some pick up in exports demand,” RCBC’s Mr. Ricafort explained.

At the same time, the economist noted that downside risk factors remain, which include escalating trade war between the United States on the one hand and China, the European Union and other developed countries on the other that could slow global trade; rising global inflation and interest rates amid higher prices of global oil; and increased “market volatilities” in emerging markets.

As for imports, Mr. Ricafort expected a “relatively stronger” year on year growth due to lower base effects.

Other major factors that could support continued growth in imports, Mr. Ricafort said, include a “sustained” increase in foreign and local investments that would require more inbound shipments of capital equipment, the pickup in manufacturing and construction that would require more imports of construction and other raw materials, and increased household spending resulting in more imports of consumer goods.

For UnionBank’s Mr. Asuncion, the slower import growth in May “may signal” further slowdown in June and July due to “seasonal” factors.

“However, import growth is generally and still expected with the growth of both public and private investments,” he said.

Asked on the prospects of reaching the government target of nine-percent export growth, Mr. Asuncion said that while it would be possible, such pace would be “really challenging under the new environment.”

“At the beginning of the year, the expectation was continuing recovery, but the current environment with the threat of a trade war between the US and China, the impact of which for Asian countries is undetermined, is hanging over the initial projection for export growth,” he said.

For RCBC’s Mr. Ricafort, a “flat or single-digit” export growth figure for 2018 is still within reach and, therefore, may have some positive contribution to economic growth “under a more optimistic scenario.”

In a statement, Socioeconomic Planning Secretary Ernesto M. Pernia cited the recent enactment of the Ease of Doing Business Act of 2018 and opportunities from free trade agreements as factors that should facilitate trade transactions and improve the business climate for exporters.

The United States was the Philippines’ top export market in May with a 14.6% market share at $840.146 million, followed by Hong Kong’s 13.8% ($796.468 million) and China’s 13.2% ($761.405 million) market shares.

The same month saw China as the Philippines’ top source of imports with a 20.3% share in May ($1.924 billion), followed by South Korea’s 10.3% ($978.611 million) and Japan’s 9.5% ($901.266 million) market shares. — Lourdes O. Pilar