Trade gap widens to record $4.2B in October

The trade deficit widened to a record $4.2 billion in October as the jump in imports, especially of food products, outpaced exports, the government reported Tuesday.

This developed while the government eased importation procedures to ease high domestic prices.

According to ING Bank Manila, the widening trade deficit was expected to sustain pressure on the peso until next year.

Preliminary Philippine Statistics Authority (PSA) data showed the value of imported goods that entered the country last October climbed 21.4 percent to $10.3 billion from $8.5 billion during the same month last year. The government eased importation procedures in response to high domestic prices.

In a report, the PSA said all top 10 import commodities posted growth that month: cereal and cereal preparations, up 52.3 percent year-on-year; mineral fuels, lubricants and related materials, up 45.4 percent; other food and live animals, up 33.6 percent; telecommunication equipment and electrical machinery, up 26.7 percent; miscellaneous manufactured articles, up 25.4 percent; plastics in primary and non-primary form, up 24.9 percent; industrial machinery and equipment, up 21.5 percent; transport equipment, up 18.4 percent; electronic products, up 14.8 percent; as well as iron and steel, up 7.8 percent.

To recall, President Rodrigo Duterte last September issued an administrative order making it easier and faster to import food as headline inflation hit over nine-year highs partly due to domestic supply constraints, especially of rice.

The government was also ramping up infrastructure spending under its ambitious “Build, Build, Build” program, such that imports of capital goods were on the rise.

As such, imports from January to October totaled $90.9 billion, up 16.8 percent from $77.9 billion a year ago.

Meanwhile, merchandise exports also grew in October but by a slower 3.3 percent to $6.1 billion from $5.9 billion last year.

The PSA said shipments to abroad of copper concentrates, machinery and transport equipment, fresh bananas, other manufactured goods, miscellaneous manufactured articles, metal components, as well as electronic products increased that month, but Philippine-made electronics equipment and parts, chemicals, and ignition wiring set and other wiring sets used in vehicles, aircraft and ships declined.

But as of end-October, total goods exports contracted 1.2 percent to $57.1 billion from $57.7 billion a year ago.

The year-to-date increase in imports surpassing the 10-month exports decline brought the end-October trade-in-goods deficit to $33.9 billion, wider than a year ago’s $20.1 billion.

“The trade deficit in October of $4.2 billion indicates that the current account will likely remain in the red for the fourth quarter of the year. Capital imports and raw material growth are not expected to slow down in the near term as imports feed the burgeoning economy. Raw materials used for construction continue to post healthy growth although we do see some hope on the horizon with raw materials used for electronic exports posting a rebound of 28.9 percent for October,” ING Bank senior economist Nicholas Antonio T. Mapa said in a note to clients.

For Mapa, “robust import growth is yet another sign that the Philippines has moved into a new chapter in its growth story, requiring a shift in the country’s import dietary requirement.”

“In the past, import growth was driven largely by fuel and consumer goods with only sporadic flows of capital goods and raw materials outside those used for electronic exports,” he noted.

However, “the current account will likely remain deep in the red with the Philippine peso looking to structural flows such as remittances ahead of the holiday season and the capital and financial account for support.”

“Over the medium term, protracted current account deficits will likely keep pressure on the peso in 2019,” he added.

Mapa last week told reporters that he expects the peso to average 54.45:$1 next year on expectations of a persistent current account deficit due to a wide trade deficit.

“We see no rebound in the export sector anytime soon,” he said. /kga