Angelo Taningco
Economist, Treasury Group

Philippine merchandise trade activity strengthened in May on the back of double-digit growth of both exports and imports of goods, but the faster increase in imports vis-à-vis exports has resulted in a wider trade deficit for the month.

Figure: Philippine Merchandise Trade
Jan. 2016 – May 2017

 
The Philippine Statistics Authority, in its latest monthly trade report released on 11 July, present data showing merchandise trade growth at 15.4% year-on-year (yoy) in May, up from 7.3% yoy in April. The increase in trade growth was more pronounced in merchandise imports, which shifted to a 16.6% yoy growth in May from −0.1% yoy in April. Meanwhile, export growth moderated to 13.7% yoy in May from 19.1% yoy in April. As a consequence of faster import growth, the trade-in-goods deficit widened 22.9% yoy to $2.8 billion in May.

The export growth in May was on the back of increases in seven out of the top ten exportable items for the month. Electronic products continued to be the largest exportable commodity-accounting for half of the month’s export proceeds of $5.5 billion-and posted 17.8% yoy growth. The top five export destinations were Japan (17% export share), United States (US) (14%), Hong Kong (13%), China (11%), and Singapore (7%).

Import growth in May was likewise prompted by bigger goods purchases from abroad in seven out of the top ten importable items-led by electronics products (24% import share); transport equipment (12%); and mineral fuels, lubricants and related materials (11%). Merchandise imports totaled $8.2 billion for the month. The top five import sources were China (19% import share), Japan (11%), US (8%), South Korea (8%), and Thailand (7%).

On a cumulative basis, merchandise exports and imports were up 16.3% yoy and 12.3% yoy, respectively, in January-May. Despite the higher growth rate for exports compared to imports, the cumulative trade deficit edged up by 3.9% yoy to $11 billion-with cumulative exports and imports at $26 billion and $37 billion, respectively.

We expect a trade-in-goods deficit for both the month of June and the second quarter. We foresee a bigger deficit level for the second quarter compared to the first quarter as our computations show the monthly merchandise trade deficit to average $2.3 billion in April-May, higher than its January-March average of $2.2 billion. If the trade-in-goods deficit in June would resemble the April-May average, then its second-quarter level would indeed be bigger than the first quarter.

An increase in the merchandise trade deficit puts more pressure on both the current account and the balance of payments (BOP) to record deficit levels. The BOP reverted to a deficit of $59 million in May from its April surplus of $917 million. It is likely that a BOP deficit would again manifest in June especially since the gross international reserves (GIR) fell by $764 million during the month; we think that this would support our expectation of a June trade deficit. Finally, we believe growth of aggregate demand and of the economy overall in the second quarter will be hampered by a rising trade-in-goods deficit.

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