Full-year trade deficit hits record high of P41.44 billion
Exports plunged in December and imports also closed the final month of 2018 in the red, the government reported on Tuesday, capping a difficult year for Philippine merchandise trade.
The full-year trade deficit ballooned to a record $41.44 billion, 51.3 percent higher compared to the 2017 result and blamed by Cabinet officials on “external challenges” such as a global economic slowdown and the impact of the US-China trade war.
Outbound shipments hit $4.72 billion in December — down 12.3 percent year on year — while the value of goods bought from abroad was 9.4 percent lower at $8.47 billion, which led to the trade deficit hitting a three-month low of $3.75 billion.
December’s imports drop, however, barely dented the full-year surge in inbound shipments, which at $108.92 billion was up 13.4 percent from 2017, and the exports plunge cemented a 1.8-percent contraction — to $67.49 billion — in overseas sales of Philippine-made goods.
The full-year trade deficit of $41.44 billion is significantly higher than the $27.28 billion and $26.70 billion recorded in 2017 and 2016, respectively, Philippine Statistics Authority (PSA) data showed.
“Merchandise trade in all the monitored Asian economies continued to weaken in the last month of 2018 as the region began to feel the impact of the weakening Chinese economy and the US-China trade tension,” Socioeconomic Planning Secretary Ernesto Pernia said in a statement.
“Policy uncertainty remains a threat to global trade, investment, and output, especially as US-China trade tensions continue. To mitigate this impact, the national government should continue to work on legislative reforms that will open up sectors for foreign investment,” he added.
In a message to reporters, Trade Secretary Ramon Lopez said that “since [the] Philippines as well as 10 other Asian economies suffered from an export decline in December, it’s quite apparent that the downward trend in exports was brought about by softening global demand induced by global growth slowdown as well as increased uncertainty amid escalating US-China trade tensions.”
“Electronics supply chain in the region was adversely affected as lower orders from one country can lead to lower orders in other supplier countries,” he added.
Electronic products, the Philippines’ top export with a 57.2-percent share of the total in December, contracted by 15.2 percent to $2.7 billion. For the full year, outbound shipments of this commodity rose 2.8 percent to $37.57 billion.
The PSA said that aside from electronics, the month’s declines was also due contractions for machinery and transport equipment (-53.1 percent), coconut oil (-24.8 percent) and other manufactured goods (-9.0 percent).
December’s imports drop, meanwhile, was attributed to declines for transport equipment (-33.3 percent), miscellaneous manufactured articles (-18.4 percent), mineral fuels, lubricants and related materials (-14.4 percent), telecommunication equipment and industrial machinery (-5.5 percent), other food and live animals (-3.5 percent) and electronic products (-1.6 percent).
Lopez said the exports drop was supported by a manufacturing slowdown in December as noted by a decline in the country’s Purchasing Managers Index (PMI). But while the indicator had fallen to a three-month low, he added that it “still showed Philippines as best performer in Asean (Association of Southeast Nations).”
For non-electronics exports, meanwhile, the Trade chief said production remained a concern and measures should be implemented to boost capacity and address supply bottlenecks.
Chemical products were “mainly affected by ports and logistics efficiency issues in their import-export operations, as well as the police security and control procedures”, while farm goods like coconut, mango and others were troubled by supply and price concerns, Lopez said.
Price and supply issues for sugar also continued to weigh on processed food shipments, he continued, indirectly referring to a government move to liberalize imports by saying that sugar costs must “be competitive to improve our capabilities to export more processed food.”
Overall, Lopez said the Trade department was focusing on improving the manufacturing sector to “allow us to do more import substitution as well as improve our export performance in the long term and help address the perennial issue on trade deficit.”
Pernia, meanwhile, also called for the approval of proposed amendments to foreign investment, retail trade and public services laws, adding that “we should encourage foreign firms to transfer their manufacturing facilities in the Philippines and to take advantage of the growing domestic market.”
Full implementation of the Ease of Doing Business and Efficient Government Service Act of 2018, he continued, will also “eliminate bureaucratic and regulatory barriers that raise the cost of doing business in the country.”
Commenting on the latest merchandise trade data, ING Bank Manila senior economist Nicholas Antonio Mapa said a continued dependence on electronics exports would keep the balance of trade in deficit.
“Exports are seen to remain lackluster given our dependence on the electronics sector to carry the entire export base, all the more given the external environment and the US-China trade war,” he said.
“Despite the continued weakening of the peso, export performance has not gained the so-called competitive edge that we had hoped it would derive from a weaker currency,” he added.
“Much more will be needed to get our export base off the ground. Overall, the trade gap will remain relatively wide in 2019, which could continue to exert a weakening bias on the Peso throughout the year.”
FROM REPORTS BY ANNA LEAH E. GONZALES AND TYRONE JASPER C. PIAD