Trade deficit shrank to four-month low in Dec 2023

MANILA  —The Philippines posted its smallest trade deficit in four months in December 2023 after exports recorded a milder drop while imports again turned negative.

The country’s balance of trade swung to a deficit of $4.01 billion in the final month of 2023, 11-percent larger compared with the previous year, the Philippine Statistics Authority (PSA) reported on Friday.

A trade deficit happens when a country is paying more for its import requirements than earning from export sales. It is usually an indication of strong domestic demand for the greenback as importers exchange their pesos for dollars to pay for their purchases abroad, which may cause the local currency to weaken.

Data showed exports inched down 0.5 percent in December to $5.78 billion, a softer decline than the 13-percent contraction posted in November.

READ: Persistent export weakness widened trade gap in November

The commodity group that recorded the steepest annual fall in sales was mineral products (-46.1 percent), followed by machinery and transport equipment (-20 percent).

Imports down 5.1%

By export market, shipments to the United States, a major trading partner, sagged 4.4 percent last month.

Meanwhile, imports dropped by 5.1 percent in December to $9.79 billion, a turnaround from the 1.3-percent growth in the preceding month after inbound shipments of capital goods posted zero growth while purchases of raw materials (-5.8 percent) and mineral fuels (27.1 percent) fell.

But imports of consumer goods posted a 10-percent growth last month, indicating resilient consumption despite high inflation and rising borrowing costs.

Elevated interest rate

Sought for comment, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the 2.3 percent month-on-month contraction in exports nevertheless confirmed a “persistent external trade weakness.”

Asuncion also said a high interest rate environment meant to tame inflation likely weighed on imports.

“Inventory boost was evident because of seasonal drivers, but, nevertheless, we still don’t expect a fast recovery amid the drag of high interest rates from the high inflation environment,” he said.

”However, we expect the trade balance in 2024 to improve on the back of potential cheaper borrowing costs from more dovish global central banks including our own,” he added. —Ian Nicolas P. Cigaral INQ