The country’s trade deficit widened further in May to a five-month high, adding further strain on the peso that has been hovering at more than a decade lows, data from the Philippine Statistics Authority (PSA) showed Tuesday.
The Philippine trade balance widened to a 6.3 percent deficit amounting to $3.7 billion, the PSA reported, the highest level since December, and followed a downwardly revised $3.48 billion gap in April.
Imports of goods climbed 11.4 percent to surpass $9 billion for the first time, while exports shrank 3.8 percent to $5.7 billion in May, marking the fifth straight month of decline.
In a statement, the National Economic and Development Authority (NEDA) said the increase in inbound purchases were driven by mineral fuels, lubricants and related materials, capital goods, consumer goods, and raw materials and intermediate goods.
On the other hand, NEDA said that the contraction in merchandise exports slowed in May partly supported by sustained growth in overseas sale of forest products.
Among the major commodity groups, only forest products posted gains (77.8 percent) to register their 19th month of consecutive growth.
Exports of plywood grew by 167.8 percent, with shipments sent mainly to Japan and the US Exports of lumber grew by 49.8 percent, which were shipped mainly to Japan and China.
Agro-based products, manufactures, mineral and petroleum products continued to register negative growth during the month.
Electronic products, which accounted for 64.9 percent of manufactures exports in May, registered a slight gain of 2.3 percent.
Socioeconomic Planning Secretary Ernesto M. Pernia said that addressing cumbersome regulations, enhancing trade facilitation, and ensuring better access to trade finance will help improve the country’s business climate for exports.
“The recent passage of the Ease of Doing Business Act of 2018 should promote trade as it aims to reduce bureaucracy and corruption, factors which weigh down on economic activity. Its timely implementation is needed to improve trade facilitation,” Pernia said.
He added that opportunities from free trade agreements (FTAs) should also be maximized by facilitating programs that will increase awareness of industry players on the benefits of these agreements.
The import-driven trade gap is expected to worsen the current account deficit this year, which could spell more trouble for the peso, one of Asia’s worst performers this year.
“The widening trade deficit will continue to put downward pressure on the peso, which has already been depreciating against the U.S. dollar during 2017 and first half of 2018,” said Rajiv Biswas, Asia Pacific Chief Economist at HIS Markit.
The peso, which slightly weakened to 53.49 per dollar in morning trade Tuesday, has lost more than six percent against the dollar so far his year due to rising interest rates in the US and deterioration of the Philippines’ external account.
For the whole year, imports were expected to grow 11 percent driven by demand for capital and consumer goods, while exports were projected to rise 10 percent, according to the Bangko Sentral ng Pilipinas (BSP).
The BSP expects the country to end the year with a current account deficit of $3.1 billion, wider than an earlier forecast of $700 million, and higher than the previous year’s $2.52 billion gap.
The Philippines, like other Asian economies that have external deficits, is under pressure to follow the U.S. Federal Reserve in shifting away from low interest rate settings or risk capital flight as investors seek higher yielding assets.
Joey Cuyegkeng, economist at ING bank, said the peso’s decline “could worsen in the absence of a decisive monetary response to rising inflation.”
The central bank raised interest rates last month for the second time in six weeks to tame inflation, becoming the region’s second central bank to deliver two hikes in a short time, after Indonesia.
Khoon Goh, head of Asia research at ANZ, said in a tweet he expects the peso to weaken further to 54 to the dollar by year end. That would be the lowest in 13 years. (Reuters with Chino S. Leyco)