More peso weakness seen as tepid export growth pushes 8-month trade gap to $26B

The local economy continued to earn fewer dollars than it spent in August – thanks to strong imports of capital equipment and oil – while the weaker peso has been failing to make Philippine exports more competitive in the international market.

The total trade gap for the first eight months of 2018 now stands at $26 billion, substantially larger than the $15.7-billion deficit recorded in the same period last year, according to data released Wednesday by the Philippine Statistics Authority (PSA).

As a result, the peso “may continue to depreciate in the medium term as the widening trade deficit is expected to continue as big-ticket infra projects kick in by next year,” Bank of the Philippine Islands lead economist Emilio Neri Jr. said in a research note to clients.

“The gap is expected to significantly exceed overseas Filipino cash remittances. Additional depreciation pressure comes from external factors including the [the US central bank’s] policy tightening, elevated oil prices, and the ongoing trade dispute among major economies,” the note added.

For August alone, the country spent $9.7 billion for imported goods while earning only $6.2 billion from its exports. This resulted in a trade deficit of $3.5 billion for the month, and 80 percent jump over the $2.7-billion gap recorded in the same period last year.

According to the PSA, the country’s total export sales reflected an increase of 3.1 percent from $5.98 billion in August 2017 to $6.16 billion in August 2018. This was due to the increases posted by six out of the top 10 commodities for the month led by exports of cathodes and sections of cathodes, of refined copper (79 percent); bananas (46 percent); other mineral products (21.8 percent); electronic products (7 percent); other manufactured goods (6.4 percent); and electronic equipment and parts (5.4 percent).

On the other hand, total imported goods for the month of August 2018 reached $9.68 billion or a growth of 11 percent from $8.72 billion posted during the same month in 2017. The increase was due to the growth of 9 out of the top 10 major import commodities for August 2018. These were cereals and cereal preparations (68.4 percent); iron and steel (63.6 percent); mineral fuels, lubricants and related materials (42.3 percent); transport equipment (29.2 percent); plastics in primary and non-primary forms (12.9 percent); electronic products (9.9 percent); miscellaneous manufactured articles (5 percent); industrial machinery and equipment (4.4 percent); and telecommunication equipment and electrical machinery (0.03 percent).

“Despite protracted weakness in the peso, exports continue to underperform, posting a 2 percent contraction year-to-date and only a feeble 3.1 percent growth in August,” ING Bank economist Nicholas Mapa said. “In turn, the weaker currency may have fomented even more inflationary pressure given the hefty import bill related to consumption and transportation.”

“The prognosis is for the current account to remain in the red, exerting further pressure on the local unit despite [central bank’s] already very hawkish stance,” he added. /kga