Trade deficit swells to 3-year high in 2021

MANILA, Philippines — The country’s trade balance tilted to its widest deficit in three years in 2021 as soaring oil demand and restocking supplies in line with the global economic recovery pushed imports to all-time highs.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade shortfall more than doubled to reach a record-high $5.2 billion in December from $2.45 billion in the same period in 2020.

This brought the total trade deficit for 2021 to $43.13 billion, expanding by 75.4 percent from the $25.6 billion in 2020, as imports continued to outpace exports. In 2018, the trade gap reached $43.53 billion.

Imports further accelerated to their highest level both on a monthly and yearly basis. Imports rose by 31.1 percent to $117.8 billion for the whole of 2021.

Exports, on the other hand, expanded by 14.5 percent to reach $74.64 billion.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the bloated trade deficit was due to the further reopening of the economy especially in the last quarter of 2021.

This led to increased economic activities, which resulted in higher importation.

In particular, global oil prices soared to a seven-year high while other imported commodities also spiked, which contributed to the bloated import bill and trade deficit.

The country’s total fuel imports in 2021 surged over 90 percent to $14.61 billion, from just $7.64 billion a year ago.

ING Bank senior economist Nicholas Mapa, for his part, said that apart from high oil prices, firms stocked up on raw materials and consumer imports after inventories were drawn down throughout the past two years.

“We expect imports to normalize in 2022 as firms complete their restocking efforts, although a potential pickup in capital imports could mean that the trade balance remains at relatively wide levels,” Mapa said.

Ricafort said that global prices remain elevated, which means that imports moving forward could still be high.

“Also to contribute are further moves to reopen the economy as new COVID cases ease significantly from record-highs and as vaccinations and booster doses accelerate,” Ricafort said.

Mapa emphasized that trade trends would continue this year and that wider trade deficits would offset inflows coming from remittances and business process outsourcing (BPO) exports of services.

This would mean that the current account would likely remain in deficit territory and put pressure on the Philippine peso in the near term.

“In terms of growth outlook, the recovery in consumer imports suggests that domestic demand has picked up. However, the still tepid recovery in capital goods suggests that the second leg of growth driver (capital formation) has yet to kick into high gear,” Mapa said.

Further, overall external trade in goods in 2021 went up by 24 percent to $192.42 billion from $155.03 billion year-on-year.

Apart from fuel, other inbound shipments of goods and services also expanded, with the sub-sectors of medicinal and pharmaceutical products, iron and steel, and transport equipment leading the growth.

For 2021, China was still the country’s biggest supplier of imported goods, with volumes increasing by 28 percent to $26.79 billion or 23 percent of the total.

In terms of exports, dollar earnings from electronic products, the country’s top export, improved by 12 percent to $42.49 billion.

Other exports that showed strength during the month include coconut oil, electronic equipment and parts, and chemicals. Among the top 10 exports, only bananas registered a decline in 2021.

Exports to the Philippines’ top 10 destinations increased by 12.6 percent to $62 billion. Significant gains were recorded in Germany, Taiwan, Thailand and China last year.

The US was the top destination with $11.85 billion or 15.9 percent of the total exports for the whole of 2021.