Trade gap narrows in December

EXPORTS of Philippine goods grew at its fastest pace in more than two years in December, narrowing the country’s trade deficit to a six-month low amid a continued decline in imports, the Philippine Statistics Authority (PSA) reported on Tuesday.

Preliminary PSA data showed the value of merchandise exports picked up by 21.4% annually to $5.74 billion in December — the fastest since July 2017’s 21.9% — compared to a revised 12.2% year-on-year decline to $4.73 billion recorded in December 2018.

December export figures drove the full-year tally to $70.33 billion, up 1.5% from the $69.31 billion in 2018’s comparable 12 months and surpassing the one percent growth target set by the Development Budget Coordination Committee (DBCC) for 2019.

Meanwhile, merchandise imports were valued at $8.22 billion in December, down 7.6% from $8.90 billion in the same month in 2018. Imports have been declining for nine straight months since April.

The import bill for 2019 amounted to $107.37 billion, down 4.8% from the $112.84 billion and falling short of the DBCC’s two-percent target set for the year.

This caused the trade-in-goods deficit in December to end at $2.48 billion from $4.17 billion in the same month in 2018. This was the lowest trade gap since June 2019’s $2.37-billion shortfall.

Cumulatively, the trade deficit reached $37.05 billion last year, smaller than the $43.53-billion gap in January-December 2018.

By commodity group, exports of manufactured goods — which accounted for 84% of the total overseas sales — grew by 19.2% to $4.82 billion. Exports of electronic products, which made up around 60% of total merchandise exports in December, rose 24.9% year-on-year to $3.44 billion. Semiconductors, which made up 76.8% of electronics, grew 31.8% to $2.64 billion.

Similarly, exports of petroleum products grew by 278.2% to $24.85 million, followed by those of mineral products (+80.2% to $365.03 million), forest products (+32.8% to $25.24 million), and agro-based products (+21.5% to $419.39 million).

On the other hand, declines were observed in the import of raw materials and intermediate goods (-19.9% to $2.62 billion), capital goods (-2.2% to $2.92 billion), and consumer goods (-1.8% to $1.37 billion). Among these commodity groups, only the imports of mineral fuels, lubricant and related materials grew, expanding by 6.5% to $1.26 billion during the period.

“The December 2019 export performance came from a low base back in the same period of 2018. This, however, also indicates a potential pick-up of exports, as trade perception improved with the potential signing of a US-China ‘phase one’ trade deal back in October 2019. This uptick is also consistent with manufacturing production growth improvements registered in January 2020,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“On the other hand, December 2019 import performance continued to be sluggish with a very slight improvement month-on-month. Note that imports have been challenged since December 2018 with its initial negative annual growth. This was aggravated by the non-passage of the 2019 budget that forced infrastructure spending to contend with a re-enacted budget,” he added, noting that infrastructure spending has fueled much of the growth in imports previously.

OUTLOOK FOR 2020
Economists expect exports to pick up and imports to recover this year, but also noted risks to this outlook.

Mr. Asuncion said the country’s export performance this year is “well anticipated to recover” as the phase one trade deal signed between the US and China last month is seen to help improve global trade sentiment.

“However, with the recent outbreak of the novel coronavirus (2019-nCoV) in the heart of China’s manufacturing hub and its various consequences (such as the Hubei Province lockdown, factory closures, tighter seaports and airports, etc.), trade with China… will be challenged until the virus outbreak is largely contained,” Mr. Asuncion said.

Meanwhile, Mr. Asuncion said merchandise imports are expected to “bounce back strong” given the timely passage of this year’s national budget and the approval of the extension of the 2019 budget’s validity until the end of 2020.

This assessment was shared by Security Bank Corp. Chief Economist Robert Dan J. Roces in a separate e-mail: “Recovery should take place faster as the fiscal budget for 2020 and 2019 operate simultaneously. Raw materials linked to construction activities will nudge the import side, while the electronics sector should see increased orders for exports on catch up activities.”

He said the trade gap for the first quarter of 2020 could be “substantially smaller… on the back of supply chain disruptions from the 2019-nCoV epidemic to reflect a general slowdown in activity.”

“The recent 25-basis-point cut by the Bangko Sentral ng Pilipinas will also continue revitalizing investment activity that bodes well for capital goods imports and consumer durables,” Mr. Roces added.

Meanwhile, in a research note on Tuesday, Nomura Holdings, Inc. Chief ASEAN Economist Euben Paracuelles said he expects the country’s current account deficit to widen to 3.2% of gross domestic product this year from last year’s estimate of 1.2% despite the surprise narrowing in the trade-in-goods deficit in December.

“Our forecast remains underpinned by stronger domestic demand, particularly higher investment spending which, in turn, is led by a further roll-out of public infrastructure projects. This has been a key driver of import demand in recent years,” Mr. Paracuelles said.

Mr. Paracuelles also noted the pickup in electronic exports in December. “However, we believe that the coronavirus outbreak is throwing a spanner in the works and making the recovery of the electronics sector less certain.”

In a statement from the National Economic and Development Authority, Socioeconomic Planning Secretary Ernesto M. Pernia on Tuesday stressed the need for the government to step up efforts against downside risks posed by health- and climate-related hazards that could affect the country’s trade sector.

“The impact of the novel coronavirus could escalate if plant closures related to the production of automotive and electronic parts negatively affect the country’s exports receipts as this accounts for about a third of the country’s outward shipments to China,” Mr. Pernia was quoted in the statement as saying. — Jobo E. Hernandez