Trade gap narrows as exports inch up

By Christine J. S. Castañeda
and Mark T. Amoguis
Researchers

EXTERNAL TRADE in goods and manufacturing likely delivered a smaller contribution to economic growth in the second quarter compared with the first three months of the year, based on data released by the government yesterday.

Sales abroad of Philippine-made goods expanded for the seventh straight month in June, albeit nearly flat for the latest period, according to the Philippine Statistics Authority (PSA).

Preliminary data released by the agency showed exports inching up by 0.8% to $4.913 billion in June, slower than the previous month’s revised 14% increase, but still a turnaround from the 9.2% contraction in June of last year.

“The steady increase in exports can be attributed to improving global demand,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines (Landbank).

“The overall rise, however, was partly offset by weaker demand for US goods and services. Moreover, there was also some normalization observed after a surge in exports last year,” he added.

The June turnout brought year-to-date merchandise receipts to $31.04 billion, up 13.6% from $27.33 billion in the same period last year, surpassing the government’s 5% merchandise export growth projection for 2017.

The PSA data showed five major commodities out of the top 10 exports contributed to the increase in June. These include electronic equipment and parts (28.6%), metal components (18.7%), ignition wiring set and other wiring sets used in vehicles, aircrafts and ships (13.7%), electronic products (4.4%), and machinery and transport equipment (1.1%).

By commodity group, shipments of manufactured goods — which accounted for 85.1% of the total overseas sales — fell by 0.03% to $4.183 billion.

Exports of mineral products rose 27.9% to $310.981 million while shipments of agro-based products increased 0.3% to $303.693 million.

“We expect Philippine trade to recover, as the global economic recovery is seen to be on firmer footing in the second half of the year,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

Japan remained the Philippines’ top export market in June with an 18.5% market share at $909.17 million. On the other hand, China — with an 18.8% share — was the country’s top source of imports.

IMPORTS DIP
Merchandise imports last June dipped by 2.5% to $7.06 billion, a reversal of the 16.6% growth the month before, as well as the 21.9% expansion in June of last year.

Mr. Dumalagan blamed the drop on easing domestic demand after last year’s one-time boost from election-related spending.

“The ability of locals to purchase foreign goods has also declined as a result of the peso’s depreciation,” he added.

Comprising 36.9% of the total imports, raw materials and intermediate goods were down 6.9% to $2.60 billion. Inbound shipments of capital goods also fell 3.5% to $2.30 billion.

With the contraction in June imports outpacing the growth in exports, the country’s balance of trade in goods registered a deficit of $2.147 billion, narrower than both the $2.737 billion last May and the $2.371 billion in June of last year.

For the second quarter alone, the deficit narrowed to $6.638 billion this year from $7.190 billion in 2016, but was wider than the $6.535 billion in the first quarter of this year.

“An improvement in the country’s trade deficit means that net exports would be a lesser drag to the Philippines’ growth in the second quarter of 2017,” Mr. Dumalagan said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (Union Bank), agreed: “This slight improvement in the trade deficit is very positive. It must be understood that not all trade deficits are bad for an economy, in the first place. All types of trade is good for an economy. It depends on the type of exports, most especially the imports. Overall trade will be good for the country’s economic growth.”

MANUFACTURING OUTPUT SLOWS
In a separate report, the PSA said the volume of production index (VoPI) rose by 8.1% last June, slower than the 9.8% recorded in the month before and the previous year.

The latest VoPI growth is faster than the 5.8% estimate made by Moody’s Analytics, but was in line with the slowdown forecast by IHS Markit-Nikkei’s purchasing managers’ index (PMI) for June.

In a statement, the National Economic and Development Authority (NEDA) said construction-related and export-oriented products propped up manufacturing growth last June.

Capacity utilization, which represents how much of factory capacity is used, averaged 83.8% for the month. Twelve of the 20 sectors registered capacity utilization rates of 80% and above.

UnionBank’s Mr. Asuncion said June’s slowdown may have been caused by the weak peso.

Landbank’s Mr. Dumalagan agreed: “Same as with imports, the slowdown in factory activity might be brought about by normalizing domestic demand after 2016’s one-time election boost.”

Despite the dip in June, manufacturing output has stayed in positive territory for almost two years since July 2015.

“The consistent expansion in factory output generally provides evidence of upbeat economic conditions in the country,” Mr. Dumalagan said.

Mr. Pernia agreed: “Looking ahead, the outlook for the manufacturing sector remains optimistic on the back of favorable domestic conditions such as stable inflation rate, robust economic demand, increased investments, and business confidence.”

The June VoPI brings the second-quarter growth to 7.3%, slower than the 12.7% in the first quarter of this year, and the 9.1% in the second quarter of last year.

The external trade in goods and manufacturing output are the last major economic data sets that the government released ahead of the announcement of the second-quarter gross domestic product (GDP) figures on August 17.

Mr. Pernia earlier said he was looking at second-quarter GDP growth settling between 6.5% and 7%. In the first quarter, GDP growth came in at 6.4%. This was below the government’s full-year target range of 6.5%-7.5%.