Angelo Taningco
Economist, Treasury Group

Philippine trade-in-goods deficit has widened in Q1 due to weak exports, and we think this may have likely weighed on Q1 GDP growth. We continue to expect the trade deficit to persist throughout the year on relatively strong import demand; this, we argue, would lead the balance of payments (BOP) to likely remain in a deficit position, which in turn would stoke depreciation pressure on the peso.

Total merchandise trade expanded by only 1.4% yoy in Q1, a relatively slow pace as import growth of 6.8% was almost offset by a 6.0% contraction in exports. The export decline in Q1 was a turnaround from its 25.5% expansion during the same quarter of last year. Q1’s import growth this year was much less than its 19.3% rate last year. The weaker performance of exports compared to imports has led the trade-in-goods deficit to widen 42% yoy to $8.7b in Q1. In March alone, the trade deficit stood at $2.6b, well below market’s median forecast of $3.0b and our estimate of $2.9b. For this year, we have penciled in a $32b trade deficit forecast.

Exports of goods contracted 8.2% yoy in March, its third-consecutive month of decline. The export contraction for the month was largely brought about by lower export sales in manufactured goods as well as agro-based, mineral and petroleum products. The downturn was evident in lower shipments to Japan and China. Import growth was only 0.1% yoy in March amid more purchases of foreign-made mineral fuels, lubricants, and related materials and less demand for imported capital goods, consumer goods, raw materials and intermediate goods. Imports from South Korea were bigger but those from China, Japan, US, and Thailand were smaller.

The National Economic and Development Authority (NEDA) has stated that the government ought to increase its support for exports in order to make it more competitive internationally. We observed the weak exports occurred despite the peso’s depreciation. We conjecture that the economy’s widening inflation differential with its major trading partners may be partly responsible for the sluggish exports.

Figure: Merchandise Trade

($ million)

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