Angelo Taningco
Economist, Treasury Group
The Philippines’ merchandise trade deficit surpassed market expectations once more and reached its biggest monthly level in December at $4.0 billion, eclipsing the $3.0 billion market median projection and the old record of $3.8 billion in November. On a full-year basis, the trade deficit expanded 11.5% to $29.8 billion in 2017, also a record-high. We expect the trade-in-goods deficit to edge up further this year, with our forecast at $32 billion. We again foresee domestic absorption—household consumption, business investment, and government spending—to outweigh domestic production, and thereby create another trade deficit position. Expectations of a bigger trade deficit will exert downward pressure on the current account balance and the Philippine peso, which appears to be constantly undervalued relative to Asian currencies.
Exports of goods contracted 4.9% yoy in December, reversing its 2.7% growth in November, while import growth moderated to 17.6% from 20.1%. Potential reasons for the export contraction include a slump in manufacturing production and peso appreciation; in December, manufacturing production dropped 9.7% yoy in volume terms while the Philippine peso appreciated 0.7% mom. The two-biggest exportable products, namely, electronics and machinery/transport equipment, grew 15.0% and 62.8%, respectively. However, other manufactured goods exports dropped 24.4% yoy and have contributed to the 1.1% slip in total manufactured goods, which accounted for 88% of total goods exports. The top five export destinations were Hong Kong, United States (US), Japan, China, and Singapore. Meanwhile, the three-biggest import items—raw materials and intermediate goods, capital goods, and consumer goods—grew 17.0%, 8.4%, and 13.3%, respectively. The top five import sources were China, South Korea, Japan, US, and Thailand.
The trade deficit’s December total led its full-year level to expand ($29.8 billion in 2017 versus $26.7 billion in 2016) since the export growth of 9.5% was less than the 10.2% import growth. The 2017 trade deficit is the biggest compared to previous years.
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