Rising imports bloat trade deficit in June

by Louise Maureen Simeon (The Philippine Star), 7 Aug 2021

MANILA, Philippines — The country’s balance of trade in goods recorded a wider deficit in June as the rebound in imports outpaced the uptick in exports during the month, the Philippine Statistics Authority (PSA) reported yesterday.

Latest data from the PSA showed the country’s trade shortfall reached $2.83 billion in June, soaring by nearly 100 percent from the $1.42 billion recorded in the same period last year, but lower than the $3.17 billion gap incurred a month ago.

The wider trade shortfall was mainly due to the faster growth in imports of 34.2 percent to $9.33 billion in June from just $6.96 billion a year ago, reflecting improved economic conditions as the economy slowly reopens.

The latest growth, however, was slower than the 55.6 percent hike recorded in May.

The country’s export performance also benefited from the reopening of the global economy, registering a growth, albeit slower, of 18 percent to $6.51 billion from a year ago.

Overall external trade in goods in June went up by 27 percent to $15.84 billion from $12.49 billion a year ago. But, it is slower than the 45 percent growth recorded in May.

From January to June, the country’s trade shortfall widened by 53 percent to $17.4 billion from $11.4 billion in the same period last year as imports continued to outpace exports.

Imports for the six-month period rose by nearly 30 percent to $53.3 billion while exports jumped by 21 percent to $35.9 billion.

For June alone, dollar earnings from electronic products, the country’s top export, registered an increase of 12.3 percent to $3.72 billion.

Exports volume is at a three-month high and still near the record high posted in March which could contribute to economic growth.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the reimposition of the enhanced community quarantine (ECQ) in Metro Manila and nearby provinces could reverse the upward trend in export performance.

“ECQ in NCR is expected to reduce economic activities, in terms of lower production, sales, and income, thereby fundamentally reducing importation requirements and also still a drag on some export-related activities, as seen in the previous ECQ,” Ricafort said.

Other exports showed strength in June, particularly cathodes, ignition wiring sets, other manufactured goods, metal components, and electronic equipment.

The country’s top 10 exports, which cornered 84 percent of the total, went up 18.5 percent to $5.45 billion during the month.

The top 10 export destinations of the Philippines also increased by 16.5 percent to $5.49 billion.

Huge growth was seen in exports to Germany, Thailand and the US which was the top export destination with purchases worth $1.09 billion or about 17 percent of total exports.

Meanwhile, inbound shipment of goods and services continued to expand, still due to low base, with the sub-sectors of mineral fuels and lubricants, transport equipment, and iron and steel all posting triple-digit gains.

Fuel imports registered a dramatic 132 percent increase amid more expensive oil prices in the world market.

China is still the country’s biggest supplier of imported goods at $2.25 billion, about 24 percent of the total.

ING Bank senior economist Nicholas Mapa said the strict mobility restrictions imposed in the first quarter slowed trade considerably, affecting both outbound shipments of goods as well as demand for imports.

Further, Mapa said the trade balance at $2.83 billion could be enough to push the current account back into deficit for the month.

This is much higher than the $2.1 billion average during the lockdowns last year, but still significantly lower than the $3.5 billion average deficit prior to the pandemic.

“These trends, however, may reverse as early as August with authorities reinstating the tightest level of mobility restrictions in the capital and surrounding provinces after confirming the spread of the Delta variant in the country,” Mapa said.

“Should these curbs persist past the current two-week schedule, we could see overall trade flows diminish in the coming months,” he said.

Mapa also said last year’s import implosion played a role in the appreciation of the peso against the dollar, as the Philippine current account balance swung back into surplus for the first time since 2017.

He also said the rebound in imports and the recent resurgence of the dollar combined to push the peso weaker by 4.7 percent year-to-date.

“The reimposition of lockdowns across the country may force recent trade trends to reverse but we doubt another round of import decline in 2021 will be enough to duplicate the peso appreciation trend we saw last year,” Mapa said.

“An overall stronger dollar coupled with portfolio outflows tied to growing concerns about the Philippine growth trajectory are likely to drive peso direction in the coming months,” he said.