Philippines: Flooding imports for infrastructure program pushes merchandise trade deficit to widest on record in October
December 11, 2018
Merchandise export growth expanded 3.3% in annual terms in October, following the revised 0.8% expansion logged in September (previously reported: -2.6% year-on-year). The acceleration came on the back of higher exports in seven of the top ten commodity groups with solid growth posted in exports of copper concentrates and bananas, while shipments of machinery and transport equipment rebounded in the month. Meanwhile electronic products export growth slowed to a near standstill in October (October: +0.6% yoy; September: +4.2% yoy).
Import growth continued to far outperform exports, surging 21.4% in October, although this was softer than September’s 26.1% expansion. All of the top 10 commodity categories posted vigorous growth in October. Notably, raw materials and intermediate goods, and capital goods imports accounted for the largest share of the overall import value, driven by the government’s infrastructure investment push. Moreover, petroleum products also remained a major item on the higher import bill.
Overall, the merchandise trade deficit widened to USD 4.2 billion in October from the USD 2.6 billion deficit registered in October 2017, marking the largest trade deficit on history (revised September 2018: USD 3.7 billion; previously reported: USD 3.9 billion).
Commenting on the Philippine’s increasing shift to higher imports, ING Senior Economist Nicholas Mapa remarked:
“Robust import growth is yet another sign that the Philippines has moved into a new chapter in its growth story, requiring a shift in the country’s import requirement. […] Going forward, the current account will likely remain deep in the red with the PHP looking to structural flows such as remittances ahead of the holiday season and the capital and financial account for support. Over the medium term, protracted current account deficits will likely keep pressure on the PHP in 2019.”
Philippines Trade Balance Forecast
FocusEconomics Consensus Forecast panelists expect exports and imports to grow 7.7% and 8.8% respectively in 2019, with the trade deficit widening to USD 40.0 billion. For 2020, the panel projects exports and imports to grow 7.4% and 11.8% respectively and the trade deficit to widen to USD 48.1 billion.