Philippines: Double-edged trade balance impact
Strong domestic economy powers imports while wide trade deficits continue to undermine the peso
| -$3.1bn |
February trade deficitStrong imports but weak exports |
| Worse than expected | |
Strength of imports reflects a strong economic outlook
February imports posted a rapid YoY increase of 18.6% from January’s pace of 11.4%.
Capital equipment imports climbed 24.5% YoY and sustained the double-digit growth since December. This imported item accounts for 33% of total imports, and they have largely been on a tear since early 2015 and have contributed to the strong overall economic expansion of 6.6% in the past three years. Consumer goods imports also accelerated to a 20% YoY increase from a soft 7% in January. Both import categories account for almost 50% of total imports. Raw material imports including electronics imports accounted for 40% increased by 19% YoY (with electronics rising by 13.5% and with 26% share of total).
The strength of strong equipment imports not only reflects a strong domestic economy but continues to support the extended economic expansion. But a large trade gap due to weak exports continues to weigh down the peso.
| 18.6% |
February import growthDomestic expansion drives strong growth |
| Higher than expected | |
Trade deficit to continue as exports haven't benefited from the weak peso
The Philippine peso has lost 17% since the end of 2014 while exports have posted an average annual growth of barely 1%.
Performance has turned for the worst. Exports in February posted the first contraction of -1.8% YoY in 15 months. Electronics exports slowed to 5% growth from 11% in January and 14.4% in 4Q. This export category accounts for almost 52% of total exports. Non-electronics exports declined by 9% YoY in February and have been contracting since November.
Fears of a trade war and the less likely competitiveness of Philippine exports compounded by a limited range of exports is likely to keep export growth anaemic and the combination of strong imports and weak exports is likely to see wider trade deficits.
We expect the trade deficit to rise to -$34.7bn this year and a current account deficit of -$3.7bn or -1.1% of GDP. The peso is likely to remain an underperformer with this external payments burden despite likely investment inflows.
Download
Download article"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).