Foreign trade surges in May as imports drive growth

MANILA, Philippines — Foreign trade expanded in May on the back of a growing imports bill that is partly driven by improving consumer appetite. However, an analyst expects a slowdown in coming months as living costs turn pricey.

What’s new

External trade rose 21.5% year-on-year to $18.3 billion in May, data from the Philippine Statistics Authority showed. This was faster compared to the 20.3% annual growth rate in April.

Exports rose 6.2% year-on-year to $6.31 billion, its 15th straight month of growth. The country's top export, electronic products, grew 1.3% annually to $3.47 billion in May.

Imports expanded at a pace of 31.4% year-on-year to $11.99 billion in May driven by shipments of expensive fuel.

The Philippines' trade deficit, which occurs when imports bill exceeds export sales, amounted to $5.68 billion in May, 6.17% wider than the previous month. That said, the trade gap fattened 78.6% on an annual basis.

Why this matters

Trade on the mend is a welcome development as the country looks to bounce back from a historic economic meltdown induced by the pandemic.

By all accounts, trade regained much of its pre-pandemic vigor last year as it finished 2021 with better figures.

What analysts say

Sought for comment, Domini Velasquez, chief economist at China Banking Corp. said that increasingly expensive living costs could curb imports as consumers shift their spending priorities.

"Moving forward, we expect that the high cost of living to shift buying preferences from durable goods such as clothes, appliances, cars, among others, to necessities such as food. This will likely translate to slower growth in our imports figure in the next months," she said in a Viber message.

Exports, which improved marginally, was hit by China's zero-Covid policy, Velasquez said. She expects a "moderating" trend in months to follow.

"For the rest of the year, we expect continued modest exports expansion due to a slowing global economy, which fears of recession in advanced economies such as the US and EU. Recent reports on inventory build-up in the US will also dampen exports demand," Velasquez added.

Miguel Chanco, chief Emerging Asia economist for UK-based Pantheon Macroeconomics, opined that widening trade deficit is "damning" while the expansion in imports did not paint a picture of convincing growth.

"Normally, we don’t mind seeing imports outperform in the country’s largely domestic demand-driven economy, as it tends to reflect strong underlying growth. This hasn’t been the case for some time, though, with commodity imports now accounting for about half of the still-hefty year-on-year gains...," he said in an emailed commentary.

"By contrast, the contribution of purchases of consumer and capital goods has fallen from the peak of over 60% in late-2020, to around 15% currently," he added.