Despite 40% growth, May disappoints foreign trade

Philippines’ trade with the rest of the world jumped 39.9 percent year-on-year to $ 14.5 billion in May amid the global economic recovery and gradual easing of domestic quarantine restrictions, the government reported Friday.

The latest preliminary data from the Philippine Statistics Authority (PSA) showed that exports of goods and imports combined reversed the decline of 35.2 percent to $ 10.4 billion a year ago.

But growth in foreign trade in May was slower than the 114.5 percent year-on-year. Two-year foreign trade figures a year ago fell under the most stringent improved social quarantine (ECQ) imposed from mid-March to May 2020, which shut down 75 percent of the economy in an attempt to contain COVID-19’s proliferation.

In May, exports rose 29.8 percent to $ 5.9 billion from $ 4.5 billion a year ago, down 26.7 percent from 2019 levels.

PSA said nine of the Philippines’ 10 largest export raw materials were growing, led by the 220.7 percent increase in ignition shipments and other wiring harnesses used in vehicles, aircraft and ships.

Imports grew faster by 47.7 percent to $ 8.6 billion from $ 5.9 billion last year, which was 40.5 percent less than the same month in 2019.

Growth in imports was boosted by year-on-year increases in nine of the top 10 commodity groups led by the 301.6 percent jump in foreign fuels, lubricants and related materials from abroad, PSA said.

Below expectations

In a report, ING Philippines senior economist Nicholas Mapa said that despite the base effects that softened trade growth figures, exports and imports fell “modestly below expectations.”

In the case of exports, Mapa pointed to “the lack of shipping options, as local exporting companies have complained about the difficulty in fulfilling export orders due to shipping bottlenecks.”

Referring to exports in May being 4.5 per cent lower than overseas sales in April, Miguel Chanco, senior economist at Pantheon Macroeconomics, said “export growth would always be slower in light of the base effects, but the scale of the slowdown is disappointing. ”

“We had hoped that exports would give a better show when the second wave of COVID-19 withdrew. The Philippines has lagged behind the regional upturn in trade, and this data is leaving it ever further behind. The details reveal weakness in shipments across the major destinations, i.e. the pull of semiconductors deepens, ”Chanco said in a report.

Trade gap pushes peso down

In terms of imports, Mapa said that these “experienced base power-induced gains, while imports of fuel products increased by 301.6 percent given the increase in actual import volumes combined with the 87 percent increase in global crude oil prices.”

“The division of imports was also a failure. Upticks in both capital and consumer goods were modest in the context of the COVID-19-induced April decline. This raises doubts about the government’s infrastructure drive so far, but we still hope on this front, as the agenda for ‘Build, Build, Build’ is finally back on track, ”Chanco said for his part.

The higher growth rate and value of imports than exports more than doubled the deficit on goods to 2.8 billion. $ In May from 1.3 billion. Dollars a year ago.

“A strong dollar theme combined with the wider-than-expected trading gap may have helped push the peso past the 50: $ 1 psychological handle on Friday with the currency now down 1.94 percent so far in July. Bangko Sentral ng Pilipinas (BSP) Governor [Benjamin] Diokno appears to be unaffected by the recent peso decline, indicating that the currency continues to be driven by supply and demand conditions, ”said Mapa.

This, he said, suggested that the BSP would likely refrain from expensive rate hikes to help curb the depreciation trend. “However, we could see that BSP changes tune if the current weakness continues for a longer period. In the short term, we expect the BSP to stick to its accommodating position, given that the economic recovery is still in its infancy, as import levels, although rising, are still below the level before COVID-19. In the meantime, we expect continued pressure on the peso in the short term, as demand for imports accelerates, especially if exports continue to be hampered by bottlenecks in shipping, ”Mapa added.

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