Trade gap continues to widen as imports outpace exports in January

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Cargo containers are seen at the port area along Manila bay. -- BW FILE PHOTO

MANILA – The Philippines’ trade deficit continued to widen in January with imports rising by double-digits amid flat exports growth.

Preliminary data released Friday by the Philippine Statistics Authority (PSA) showed the January trade deficit reached $3.317 billion, expanding from $2.469 billion posted in the same period last year. This was also close to the $3.84 billion deficit posted in December.

Merchandise export receipts during the month was $5.219 billion, 0.5% more than the $5.191 billion recorded in January 2017.

Meanwhile, the country’s import bill continued to grow at double-digits at 11.4% to $8.536 billion in January from last year’s $7.660 billion.
These brought total trade to $13.754 billion, 7% higher compared to $12.851 billion on a year-on-year basis.

In a statement, the National Economic and Development Authority (NEDA) attributed the flat export growth to the “sluggish non-electronic and agro-based commodity sales” that was said to be its slowest since 2.3% in December 2016.

For Angelo B. Taningco, economist at Security Bank Corp., the export slowdown “may be attributed to a high base, especially since January 2017 recorded strong export growth.”

Michael L. Ricafort, Rizal Commercial Banking Corp. economist, was of the same view: “[The] higher prices of oil and other major global commodities and weaker peso exchange rate partly caused the year-on-year widening of the trade deficit, as well as the faster economic activities in the latter part of 2017 that required greater importation such as for capital equipment, raw materials, finished goods.”

Mr. Ricafort likewise noted that on a month-on-month basis, January’s trade deficit was narrower than the record-high $3.8 billion trade deficit in December 2017 that may be attributed to the increased import activities in December just when higher prices under the first package of the TRAIN (Tax Reform for Acceleration and Inclusion) law would take effect.

University of Asia and the Pacific (UA&P) economist Peter Lee U noted that January is “not a particular month for exports.”

“However, even as exports’ numbers were due to base effect, the quantities are still there,” he noted.

On the import side, double-digit increases were seen in six sectors, namely, industrial machinery and equipment (26%); iron and steel (25%); cereals and cereal preparations (22.9%); electronic products (18.9%); telecommunication equipment and electrical machinery (13.5%); and “miscellaneous” manufactured articles (11.4%).

By major types of goods, growth in imports of capital goods was 16.9% to $2.728 billion. Imports of raw materials and intermediate goods ($3.488 billion) and consumer goods ($1.364 billion) was higher by 14.9% and 8.1%, respectively.

On the export side, sales of “cathodes and sections of cathodes, of refined copper,” were valued at $85.24 million, significantly higher than the low base of $1.99 million or around a 4183.42% growth. Other sectors that posted robust export sales were gold (358.7%), machinery and transport equipment (23.6%); metal components (18.9%); and electronic equipment and parts (18.3%).

By major type of goods, exports of manufactured goods were 4.4% lower in January compared to the same period a year ago with a value of $4.344 billion. Exports of agro-based products were also down by 11.2% ($351.345 million).

Bucking the trend were increases seen in mineral products (235.8% to $352.401 million); petroleum products (147.7% to $28.690 million); re-exports (557% to $56.789 million); and forest products (83.2% to $17.890 million).

For UA&P’s Mr. U, the double-digit growth in imports and exports of electronic products are “comforting.”

“Imported electronic products are usually re-assembled and tested here. This is an advance indicator that electronic exports will continue to grow, as electronics remain a large part of our exports and the economy,” he said.

On the composition of imports, Mr. U said that most of these are capital and intermediate goods or those needed for manufacturing production, which is a “good sign.”

Trade and Industry Secretary Ramon M. Lopez concurred: “It’s a good sign that our manufacturing sector is continuously recovering…,” he told reporters on the sidelines of a press conference in Quezon City Friday.

“It really has to be quality imports. This does not pertain to consumption but capital goods,” he reiterated.

The Trade Secretary likewise said that having a trade deficit is normal, but underscored the need for higher manufacturing capacity.

“Over the past decades, our country has been not prepared for a multi-production capacity, due to structural issues.For this reason, we usually import to address consumption needs rather than manufacture. Therefore, the country really needs to build production capacity, and address that structural problem,” he said.

“Higher production capacity should really be the one driving exports in the future. This way, a sustainable trade surplus is achieved.”

Looking forward, economists expect exports to grow this year but the trade deficit will continue to persist.
“With the global economy still set for a higher growth trajectory in 2018, the Philippines is off to a good start.

However, it is essential for the national government to continue on its initiatives to support exports growth,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in the NEDA statement as saying.

The government targets exports and imports to grow by 8% and 9%, respectively, this year. Mr. Pernia, who also sits as NEDA’s director-general, said that the growth in exports will be “supported by a revival of the agribusiness sector.”

“To achieve this, the Philippines needs to build up integrated industries that would generate higher value addition, especially for key products such as bananas, cacao, coffee, mangoes, and rubber as well as for other emerging high value crops,” he said.

For Security Bank’s Mr. Taningco, imports will outpace exports this year with the trade deficit to reach as high as $32 million compared to the $29.6 billion in 2017.

“Import growth will be supported by government’s infrastructure spending program and lower inflation abroad [while] export growth will be reinforced by local manufacturing production and buoyant global economy exerting strong external demand for locally-made manufactured items,” he said. — Carmina Angelica V. Olano with inputs from Arra B. Francia