Think tank: Import deluge making PH stronger

While an import surge would keep the current account deficit wider until next year and could further weaken the peso, the Philippine economy remained far from overheating as this strategy supports the government’s banner infrastructure development program.

“A widening trade deficit [or a declining surplus] can be another sign of economic overheating, as domestic demand outpaces supply. At first glance, this does seem to be happening in the Philippines, wherein [a] surge in import growth in September pushed the trade deficit to a nine-month high,” senior Asia economist Gareth Leather of London-based Capital Economics said in a Nov. 9 report titled “Philippines: import surge a good development.”

Last week, the government reported that the trade deficit widened to $3.927 billion in September, the biggest so far this year, as imports jumped while merchandise exports declined that month.

As of end-September, the year-to-date trade-in-goods deficit stood at $29.91 billion.

The wider trade deficit was putting pressure on the current account, a component of the country’s balance of payments, making the market wary and pulling down the peso to 13-year lows.

“However, looking at the figures in detail suggests that we shouldn’t be too worried. The current surge in imports is being driven largely by capital goods, which account for around half of total imports. Instead of being a cause for concern, booming demand for capital goods is an encouraging sign that the government’s infrastructure drive is making progress,” Capital Economics said.

“Poor road, rail and port facilities act as a drag on economic growth in the Philippines, and better infrastructure should boost the economy’s productive potential,” it added.

As of end-June, the current account deficit ballooned to $3.1 billion—equivalent to 1.9 percent of gross domestic product—from $133 million or only 0.1 percent of GDP a year ago, mainly on the back of a bigger trade deficit.