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Trade, industrial output rise in Aug. on strong domestic demand

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PHILSTAR

TRADE and industrial output both rose in August, boosted by the depreciating peso, increased domestic demand and stabilizing developed economies, officials and analysts said.

They noted however that the trade deficit widened during the month,  with the value of imports outweighing that of exports.

The Philippine Statistics Authority (PSA) said that in August, goods exports grew 9.4% to $5.51 billion — the indicator’s ninth straight month of growth. Growth slowed from 11% in July but represented a turnaround from the revised 1.8% contraction in August 2016.

On the other hand, import growth was 10.5% during the same period to $7.92 billion, a reversal of July’s 3.2% contraction and slower than the 16% in August 2016.

Year-to-date merchandise exports totaled $42.105 billion, up 13.3% growth. Goods imports, meanwhile, were at $59.15 billion, up 8.2%, bringing the trade deficit to $17.05 billion in the eight months to August.

In a statement, the National Economic and Development Authority (NEDA) said the increase in export activity was boosted by shipments to the Association of Southeast Asian Nations and the European Union, which grew 13.9% and 31.3% respectively during the month.

NEDA also noted that total trade — the sum of exports and imports — hit $13.42 billion in August, up 10% year on year and a “significant jump from June (1.5%) and July’s (2.5%) growth.”

Among the country’s trading partners, the United States accounted for 15.2% of the country’s total exports in August, followed by Japan (15%), Hong Kong (14.4%), China (11%) and Singapore (5.4%).

Meanwhile, the country’s biggest source of imports during the month came from China (16.9%), Japan (11.4%), South Korea (8.9%), the United States (7.8%), and Indonesia (7.6%).

Outbound shipments of manufactured goods, which accounted for 83.2% of total exports in August, grew 5.4% to $4.58 billion. Electronic products, the country’s top merchandise export, grew at a modest 3.5% to $2.86 billion.

Mineral products — with a 4.7% share of the total — grew 40% to $332.73 million. Exports of agro-based products, meanwhile, were up 32.6% at $456.38 million.

“Exports continued to grow at a solid pace, helped by the steady depreciation of the local currency, which improved the price advantage of domestic products in the international market,” Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said.

“Imports meanwhile, recovered, as demand for East Asian products jumped in August 2017 after showing annual declines since June 2017. Imports have generally been weaker this year amid normalizing domestic demand after last year’s election-related boost.”

UnionBank of the Philippines (UnionBank) Chief Economist Ruben Carlo O. Asuncion added that the country’s increasing trade deficit position “is not all bad as generally perceived.”

“It must be noted that these imports feed into investment activities that further domestic economic gain. Capital goods and other fixed investments will eventually drive economic growth levers together with favorable demographics for the economy. It may look bad because it is a ‘deficit.’ I see this deficit as transitory and temporary,” he said.

Landbank’s Mr. Dumalagan said the wider trade deficit is “still generally expected to subtract fewer points from the country’s GDP (gross domestic product) growth in the third quarter and the entire 2017.”

Both analysts share the same outlook for September trade. Mr. Dumalagan expects that imports “will grow at a slower pace in the remaining months of the year… due to a weaker peso, which reduces the purchasing power of the local currency.”

Exports “might continue to grow at a robust pace due to the peso’s depreciation and improving economic conditions globally,” Mr. Dumalagan said.

Meanwhile, manufacturing output accelerated in August, rebounding from a downturn a month earlier.

The preliminary result from the Monthly Integrated Survey of Selected Industries showed that factory output, measured by the volume of production index, grew 2.8% year on year in August, a recovery from the revised 3.5% decline seen in July but slower than the 13.3% posted in August 2016.

Year to date, factory output grew 5.4%, slower than the 9.9% a year earlier.

Nevertheless, the results exceeded the expectations of analysts.

Moody’s Analytics projected a 2% decline during the period, while Nikkei’s Purchasing Managers’ Index for manufacturing showed an estimate of 50.6, the weakest reading to date.

In a separate statement, NEDA pointed to “construction-related manufactures” and “export-oriented products” as sectors driving the factory rebound during the month. In particular, the former include fabricated metal products (89.5%); basic metals (28.5%); and non-metallic mineral products (18.7%) while the latter referred to those in furniture and fixtures (35.6%) and leather products (21.9%).

Other sectors that recorded double-digit gains during the period were printing (41.6%); food manufacturing (26.3%); transport equipment (18.6%); electrical machinery (16.8%) and paper and paper products (12.1%).

Average capacity utilization, the extent by which industry resources are used in the production of goods, was estimated at 83.8%. Eleven of the 20 sectors registered capacity utilization rates of 80% and above.

Analysts also attributed factory output growth to the increase in construction projects and rising exports.

“The momentum of the anticipated increase in government expenditures due to the aggressive plan of infrastructure development is fueling this recovery,” said UnionBank’s Mr. Asuncion.

“It is fitting to note that construction-related [products] have led this manufacturing output rebound.”

NEDA Officer-in-Charge and Undersecretary Rolando G. Tungpalan expects growth in manufacturing to pick up in the fourth quarter, pointing to construction products “as the key drivers.”

“Sustained infrastructure development, translating to increase in public construction expenditure, is anticipated not only to increase the growth of the manufacturing sector but also to support the continuous growth of the economy,” he said.

Mr. Tungpalan, however, said that risks and uncertainties weigh in on this optimistic outlook.

“Short-term upward inflationary pressures such as increase in global oil prices, as well as price increases in fish, corn, vegetables, flour and other cereal products, may affect cost of production. Typhoon occurrences may also interrupt business activities, resulting in lower manufacturing output,” he said. — Arjay L. Balinbin and  Karl Angelo N. Vidal

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