Despite 40% growth, May foreign trade disappoints

The Philippines’ trade with the rest of the world jumped 39.9 percent year-on-year to $14.5 billion in May amid global economic recovery and gradual easing of domestic quarantine restrictions, the government reported on Friday.

The latest preliminary Philippine Statistics Authority (PSA) data showed that merchandise exports and imports combined reversed the 35.2-percent drop to $10.4 billion a year ago.

But the growth in external trade in May was slower than the 114.5-percent year-on-year jump in April. Two-way foreign trade figures a year ago fell during the most stringent enhanced community quarantine (ECQ) imposed from mid-March to May 2020, which shut down 75 percent of the economy in a bid to contain COVID-19’s spread.

In May, exports rose by 29.8 percent to $5.9 billion from $4.5 billion a year ago, which had dropped 26.7 percent from 2019 levels.

The PSA said nine of the Philippines’ 10 biggest export commodities posted growth, led by the 220.7-percent increase in shipments of ignition and other wiring sets used in vehicles, aircraft and ships.

Imports climbed by a faster 47.7 percent to $8.6 billion from $5.9 billion last year, which was 40.5-percent smaller than the same month in 2019.

The growth in imports was boosted by year-on-year increases in nine of the top 10 commodity groups led by the 301.6-percent jump in mineral fuels, lubricants and related materials from abroad, the PSA said.

Below expectations

In a report, ING Philippines senior economist Nicholas Mapa said that despite the base effects, which bloated the trade growth figures, exports and imports “fell modestly below expectations.”

In the case of exports, Mapa pointed to “the lack of shipment options as local exporting firms have complained about the difficulty of fulfilling export orders due to bottlenecks in the shipping industry.”

Citing that May exports were 4.5-percent smaller than overseas sales in April, Miguel Chanco, senior Asia economist of Pantheon Macroeconomics, said “export growth was always going to slow, in light of the base effects, but the extent of the slowdown is disappointing.”

“We had hoped that exports would put in a better show, as the second wave of COVID-19 retreated. The Philippines has lagged behind the regional trade upswing, and these data now leave it further behind still. The details reveal weakness in shipments across the major destinations, wit the drag from semiconductors deepening,” Chanco said in a report.

Trade gap pushes peso down

As for imports, Mapa said these “saw base effect-induced gains while imports of fuel products surged by 301.6 percent given the increase in actual import volume coupled with the 87-percent increase in global crude oil prices.”

“The breakdowns on the import side were also a letdown. Upticks in both capital and consumer goods were modest in the context of the COVID-19-induced April declines. This casts doubt on the government’s infrastructure drive, for now, but we still hold out hope on this front, as the ‘Build, Build, Build’ agenda finally is back on the rails,” Chanco, for his part, said.

The higher growth rate and value of imports than exports more than doubled the trade-in-goods deficit to $2.8 billion in May from $1.3 billion a year ago.

“A strong dollar theme coupled with the wider-than-expected trade gap may have helped push the peso past the 50:$1 psychological handle on Friday with the currency now down 1.94 percent thus far in July. Bangko Sentral ng Pilipinas (BSP) Governor [Benjamin] Diokno appears unfazed by the recent peso drop, however, indicating that the currency continues to be driven by supply and demand conditions,” Mapa said.

This, he said, suggested that the BSP would likely refrain from costly policy rate hikes to help stem the depreciation trend. “However, we could see the BSP changing its tune should the current weakness go on for a considerable period of time. In the near term, we expect the BSP to stick to its accommodative stance given that the economic recovery is still in its nascent stages as import levels, although rising, are still below pre-COVID-19 levels. Meanwhile, we expect continued pressure on peso in the near term as import demand accelerates, especially if exports remain hampered by shipping bottlenecks,” Mapa added.