Trade gap narrows to 17-month low

THE PHILIPPINES’ trade deficit stood at $3.31 billion in October, the narrowest gap in 17 months, as exports growth continued to outpace imports, the Philippine Statistics Authority (PSA) reported on Tuesday.

Preliminary data from the PSA showed the value of exports rose by 20% year on year to $7.70 billion in October, the fastest pace in 17 months or the 30.8% in May 2021.

The October exports growth was also quicker than the 2% seen in the same month last year, and the revised 7.1% in September.

Imports, on the other hand, jumped by 7.5% to $11 billion in October, ending 19 straight months of double-digit expansion.

This was the slowest imports growth in 21 months, or since the 11.8% decline in January 2021. It was also weaker than the 22.8% expansion a year ago and the revised 14.4% seen in September.

This brought the trade-in-goods deficit — the difference between exports and imports — to $3.31 billion in October, narrower than the $3.82-billion shortfall a year ago and the revised $4.84-billion gap in September.

Total trade — the sum of exports and imports — grew by 12.3% to $18.70 billion, a tad slower than the 13.8% in October last year but faster than the revised 11.5% in September.

In the 10 months to October, exports grew by 6.3% year on year to $66.01 billion. This is still above the revised 4% growth target set by the Development Budget Coordination Committee (DBCC).

Year to date, imports climbed by 22.7% to $115.99 billion, breaching the government’s revised 20% target this year.

In the January-to-October period, the trade deficit widened to $49.98 billion, from the $32.40-billion gap a year ago.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the double-digit exports growth in October can be attributed to “good external demand amid a holiday inventory buildup, and a strong US dollar.”

“With this, the slowing of imports is likely due to increasing costs for imported goods; rising shipping and raw material costs, global inflation, and supply imbalances have made imported goods more expensive,” he said in an e-mail.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said exports received a boost after the electronics sector had a strong month.

By major type of goods, manufactured goods had the biggest share (85.4%) of the total exports in October, amounting to $6.57 billion.

Electronic products, which accounted for more than three-fourths of manufactured goods and 66.3% of the total exports, rose 39.6% to $5.10 billion in October.

Semiconductors, which accounted for the bulk of the electronic products, surged 62.7% to $4.30 billion. Overall, sales of semiconductors made up more than half of October’s total exports.

On the other hand, imports of raw materials and intermediate goods had the largest share among major type of goods with 38.7%, inching up by 1.8% to $4.26 billion in October.

Imports of capital goods, which made up 26.2% of the total imports in October, fell by 3.5% to $2.88 billion.

Consumer goods rose 22.5% to $1.89 billion, while imports of mineral fuels, lubricants, and related materials climbed by 29.7% to $1.88 billion.

“The reason for the slower (imports) expansion can be traced to negative growth for capital goods and only modest growth for raw materials, suggesting that this episode of import growth is not capital intensive and investment momentum may be lacking,” Mr. Mapa said in an e-mail.

Mr. Mapa said imports may be driven by the elevated price of crude oil and resurgent demand for consumer goods ahead of the holiday season.

John Paolo R. Rivera, economist at the Asian Institute of Management, said the peso’s depreciation against the US dollar may have hurt imports as these became more expensive.

“Exports also increased due to increases in demand for Philippine products as the world economy continues to reopen from the pandemic,” Mr. Rivera said in an e-mail.

Hong Kong was the top destination of Philippine-made products in October with export receipts amounting to $1.28 billion, accounting for 16.6% of the total.

Exports to the United States stood at $1.18 billion (15.3% share), while exports to Japan reached $999.67 million (13%).

Meanwhile, China remained the main source of imports in October, reaching $2.22 billion or 20.2% of the total. This was followed by Indonesia with $1.27 billion (11.8% share) and Japan with $1.01 billion (9.2% share).

“The smaller-than-expected trade deficit suggests that the peso’s worst days may be over for now as one of the main reasons for the currency’s struggles (record wide trade deficit) is now less pronounced,” Mr. Mapa said.

Mr. Roces said imports are expected to recover in the near term as holiday demand surges.

“Over the medium term, China’s new policy stance swinging decisively away from growth-constraining lockdowns means its consumer demand will drive the recovery with its exports likely getting stifled by a global slowdown,” Mr. Roces said, adding this will benefit Philippine exporters to China.

Earlier last week, the DBCC revised growth targets and other macroeconomic assumptions, citing an anticipated global economic slowdown in 2023.

Economic managers expect slower growth in imports (4%) and exports (3%) in 2023. — A.M.P. Yraola with inputs from Reuters