With the released wide trade gap data by the Philippine Statistics Authority (PSA) last week, various economists expect the country’s trade deficit to persist and remain over the succeeding months.
Earlier, the PSA reported a sustained strength in the Philippines’ imports recording a 6.8 percent year-on-year growth in November 2018, a complete opposite of exports fetching 0.3 percent setback in the same comparative period.
APAC chief economist at IHS Markit Rajiv Biswas through an email said this development on the country’s trade data brings deficit to a sharply higher $37.7 billion in the 11-month period versus the recorded $23.4 billion in the same period in 2017.
“The widening trade deficit in 2018 is a key factor driving the current account deficit higher, with the BSP (Bangko Sentral ng Pilipinas) having estimated that the current account deficit in 2018 will be around 1.9 percent of GDP (gross domestic product), widening further to 2.3 percent of GDP in 2019,” Biswas said.
“This is likely to continue to put downwards pressure on the peso and on foreign exchange reserves in 2019,” he added.
He then explained the weak performance exhibited by the country’s exports stemmed from contraction in electronic products being the largest merchandise shipped by the Philippines.
“The downturn in electronics exports reflects a significant slowdown in global electronics demand in the second half of 2018, notably for electronics components for smartphones, as global smartphone sales have weakened significantly,” he said.
“With the outlook for global electronics orders expected to remain weak in the first half of 2019, the near term outlook for Philippines electronics exports is likely to be soft in coming months, continuing to act as a drag on total Philippines export growth momentum,” he concluded.
Union Bank of the Philippines chief economist Carlo Asuncion shared the sentiment as he said that the observed weakness in exports was expected as impacted by the slowdown in global trade close to the effect of the US-China trade war.
“Exports may, however, finally see the light of day as positive developments continue to come out from the US-China trade negotiations,” Asuncion said.
“The Economic Research Unit expects the trade balance would continue to incur deficits in the near-term, as the National Government continues to increase spending on infrastructure,” he added.
On the other hand, ING Bank senior economist Nicholas Mapa likewise said that as this trade gap is likely seen in the near-term, the country’s current account is perceived to “remain in the red.”
He then explained the local unit has been benefiting in the early weeks of 2019 as the Fed is perceived to take a more eased policy stance.