Trade gap in January 2018 widens year on year

MANILA, Philippines — Deficit in the Philippines’ balance of trade in goods widened in January from a year ago, although below market expectations, after slow surge in imports outpaced exports’ surprising growth.

Data released Friday by the Philippine Statistics Agency show the country incurred a $3.32 billion trade gap in January, higher than the $2.47 billion deficit posted in the same month a year ago but slimmer than December’s $3.84 billion.

Economists polled by Bloomberg had expected trade deficit in the first month of the year to settle at $3.5 billion, Bloomberg TV Philippines reported.

The January figure was brought by an 11.4 percent growth in imports last January, slower than 12.2 percent recorded a year ago and the 20.0 percent clip in December.

The double-digit uptick in imports was led by heightened purchases of mineral fuels, iron and steel, telecommunication equipment and electrical machinery, among others.

On the other hand, export sales inched up by 0.5 percent, beating forecasts but still the slowest turnout since the 4.5 percent contraction in November 2016.

"Exports grew at a slower pace due to weaker demand from a handful of countries, including some major trading partners such as the US, Singapore, South Korea and Netherlands," said Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines.

"The slowdown in exports in the past few months is quite surprising given that domestic products have become more competitive in terms of price because of the peso's depreciation. Furthermore, it is also surprising considering that global growth has been generally improving in recent periods," he added.

Separately, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines Inc., said he expects exports to further recover this year.

“Imports growth has been largely expected. I was a bit surprised by January exports. Looking at the export losers, it seems they were mainstays from last year,” Asuncion said.

China was the Philippines’ biggest source of imports with 18.9 percent share in January 2018, while Japan was the country’s top export destination for the month with 17.2 percent share.

Peso to depreciate

The Philippines had finished 2017 posting its largest ever annual trade deficit, pressuring the peso which is hovering near 11-year lows.

The ballooning trade gap came as demand for imports of construction-related goods gets a boost from President Rodrigo Duterte’s P8.44-trillion infrastructure program.

The increasing capital goods imports due to the infrastructure boom brought the country’s current account surplus to a deficit, which is expected to further widen and undermine the peso.

As of 12:00 p.m. Friday, the local currency traded at P52.11 against the greenback, eight centavos weaker than the P52.03-per-dollar close on Thursday.

"The peso was relatively weak early today at about the same time when the Philippine trade report was released. The peso, however, immediately recovered, and for the rest of the day, it generally moved sideways with respect to the dollar," LandBank's Dumalagan said.

For Union Bank’s Asuncion, strong imports growth driven by the infrastructure push will continue to weigh on the already weak peso, which he said is “not bad at all for the economy at this point.”

“Robust remittances and recovery of business process outsourcing revenues will continue to temper the downward pressure on the peso,” Asuncion said.

For 2018 to 2022, the interagency Development Budget Coordination Committee expects an exchange rate of P49 to P52 against the dollar, adjusting it from a previous projection of P48 to P51.