Angelo Taningco
Economist, Treasury Group
Philippine merchandise trade deficit narrowed sharply in July as exports of goods surged and importable items fell: the deficit stood at $1.6 billion for the month, way below Bloomberg’s market median forecast of $2.4 billion. This is the lowest trade-in-goods deficit since February 2016. On a year-to-date basis, the merchandise trade deficit amounted to $14.7 billion in January-July, lower than its year-ago level of $15.4 billion.
Merchandise export growth accelerated to a more-than-expected 10.4% year-on-year (yoy) in July (market forecast: 8.9% yoy) from 5.8% yoy in June; goods exports valued $5.3 billion for the month. In contrast, merchandise imports unexpectedly fell 3.2% yoy in July (market forecast: 6.5% yoy), its second-consecutive month of decline following its 1.3% yoy slip in June; imports totaled $6.9 billion for the month. Overall merchandise trade growth edged up to 2.3% yoy in July from 1.5% yoy in June.
Figure: Merchandise Trade Indicators
Jan. 2016 – Jul. 2017
The top ten export destinations accounted for 82% of July’s merchandise exports, led by Japan (17% export share), the United States (US) (15%), Hong Kong (14%), and China (11%). Meanwhile, 76% of merchandise imports for the month came from the top ten import sources, led by China (17% import share) and Japan (11%).
Electronic products, the country’s top tradable commodity for the month accounting for 52% of exports and 22% of imports, were partly responsible for the country’s positive export performance given its 12% yoy export growth as well as the negative import reading since its importation contracted 21% yoy.
On a cumulative basis, export growth remained higher than import growth (13.8% yoy versus 7.9% yoy), and we conjecture that this phenomenon may have been prompted by the relatively good output performance of the manufacturing sector; the depreciation of the Philippine peso; and better economic activity in most of the top export markets. We continue to expect export growth to remain more buoyant than import growth for the second semester and for the full year.
As regards the merchandise trade balance, we maintain our expectation of a persistent trade deficit for the rest of the year, but recognize that it may again shrink in the upcoming months on the basis of a stronger export performance. We surmise that a further narrowing in the trade deficit would exert upward pressure on the current account balance and help temper expectations of sharp peso depreciation; along this line, we keep our end-2017 USD/PHP forecast of 51.25.
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