June trade deficit smallest in 15 months on import decline

THE COUNTRY’s trade-in-goods gap in June shrank to its smallest amount in 15 months as imports declined by a double-digit rate while exports rode bigger earnings from electronic products.

Preliminary Philippine Statistics Authority (PSA) showed merchandise exports grew 1.5% to $6.008 billion in June, faster than the one-percent growth in May but slower than the 3.7% growth in June 2018.

On the other hand, the merchandise import bill fell by 10.4% to $8.48 billion in June from $9.469 billion in the same month in 2018.

June marked the third straight month of expansion and decline in exports and imports, respectively.

These flows brought the country’s trade deficit to $2.473 billion in June, 30.4% less than the $3.553 billion shortfall in June 2018. June’s deficit was the narrowest in 15 months or since the $2.34-billion trade gap in March 2018.

Year-to-date, merchandise exports were down 0.8% to $34.114 billion from $34.397 billion in 2018’s comparable six months.

That compares to the downward-revised two-percent growth target set by the Development Budget Coordination Committee (DBCC) for 2019.

Meanwhile, year-to-date merchandise imports dipped by a percent to $53.117 billion from $53.632 billion, against the DBCC’s downward-revised seven percent projection for the year.

Cumulatively, the trade deficit declined 1.2% to $19.004 billion from $19.235 billion.

By major category, manufactured items — which make up 84.4% of the country’s total export goods — grew 1.4% year-on-year in June to $5.07 billion.

Electronics, which made up more than two-thirds of manufactured goods and more than half of the country’s exported goods, grew by 4.3% to $3.543 billion in June, with semiconductors contributing $2.631 billion, up 4.1% from $2.529 billion a year ago.

Agro-based products (8.3%), forest products (41%) and mineral products (19.1%) grew as well.

While exports of petroleum products fell 94.9%, they made up just 0.05% at $2.813 million.

Imports of raw materials and intermediate goods, which accounted for 36.5% of the total, recorded the steepest decline among the major types of imports at 16.5% to $3.093 billion from $3.704 billion in June 2018.

Imports of capital goods and consumer goods were fell 3.4% and 12.8%, respectively, to $2.904 billion and $1.360 billion.

Imports of mineral fuels, lubricants and related materials posted a seven-percent decline to $1.066 billion from $1.147 billion.

A statement of the National Economic and Development Authority (NEDA) quoted its director general, Socioeconomic Planning Secretary Ernesto M. Pernia, as attributing the trade performance partly to “ongoing trade disputes, Brexit-related uncertainties and rising geopolitical tensions.”

“Despite the challenging external environment, the Philippines has shown resilience in its trade performance. The Philippines is among the countries in Asia with positive export growth.”

NEDA said only Vietnam and the Philippines managed to register export earnings in June among other Asian economies like China, India, Indonesia, Malaysia, Singapore and Thailand.

GDP IMPACT
For UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion, the “improving” trade deficit observed in June “is not really the kind of ‘narrowing’… that a growing economy like the Philippines would want.”

“Although it has been positive, export performance has been weak and the sentiment of the external environment on the protracted US-China trade tussle has been largely the culprit,” Mr. Asuncion said in an e-mail.

“On the other hand, import performance has been slowing, compared to the same period last year, as a direct result of the slow government spending that originally propped up imports in the last three years.”

For Security Bank Corp. Treasury Group assistant vice-president and chief economist Robert Dan J. Roces, the sluggish import performance can be traced to the 2019 national budget’s nearly four-month delay in enactment “as orders for imported raw materials for the [infrastructure] program were curbed.”

“Better supply-side conditions in food — notably rice due to liberalization — also caused a slowing of imports in this category as inventory levels were in surplus and caused inflation to decline as well,” Mr. Roces said.

For exports, Mr. Roces noted the positive contribution of the “ever-reliable” electronics sector even as its growth is tempered by the effects of the ongoing trade war.

ING Bank NV Manila senior economist Nicholas Antonio T. Mapa, likewise noted the growth in electronics exports lifting the sector. “[G]iven how reliant the Philippine is on the electronics subsector, the fate of the overall portfolio rests almost solely on the fortunes of this sector amidst the simmering trade conflict between the US and China. Going forward, we continue to hope for true reform in this sector if we hope to see a true export renaissance,” Mr. Mapa said.

Despite the narrowing trade gap in June and the rest of the second quarter, economists said that this may not necessarily be a positive for the economy.

The PSA will report the official second-quarter GDP data on Thursday morning, hours before the central bank holds if fifth monetary policy review for the year.

“The relatively less severe trade gap could be one factor for the peso’s improved performance for the month, although the contraction in capital imports could take off even more shine from the [second-quarter] GDP growth print,” ING Bank’s Mr. Mapa said.

Mr. Mapa noted the sharp drop in the imports of raw materials such as iron, steel and other metal products which may translate to a contraction in construction activity.

“Further worrisome was the 12.8% drop in consumer goods as durable goods for households cratered by 15.8%… passenger cars and home appliances were down, adding to expectations for a weak [second-quarter] GDP growth print,” he said.

“The budget delay and still elevated borrowing costs have likely hit capital formation with the import numbers showcasing this development…”

UnionBank’s Mr. Asuncion shared this view, saying that weak growth in exports and declining imports “may not bode well” for economic expansion.

For Security Bank’s Mr. Roces, the trade deficit will contribute to “lackluster” second-quarter GDP growth.

“Moving forward, we expect imports to get better in the second half as infrastructure projects and spending get underway. We also think that exports shall still be driven by the electronics sector in the near-term, and could improve if the sector becomes a conduit between the two warring nations in the trade war,” Security Bank’s Mr. Roces said.

For UnionBank’s Mr. Asuncion, the uncertainty on the protracted US-China trade war “will continue to hamper demand prospects for Philippine export products.”

“On the other hand, imports growth is expected to improve with the full implementation of the 2019 national budget that was initially delayed due to political issues,” he said. — Lourdes O. Pilar