THE National Economic and Development Authority (Neda) said on Tuesday the favorable impact of a weak peso on the country’s exports, and consequently, on the trade balance, will take some more time.
On Tuesday data released by the Philippine Statistics Authority (PSA) showed the country’s trade deficit widened further to $3.7 billion in May 2018, or 47.41 percent higher than the $2.5-billion deficit in May 2017.
This placed the country’s trade deficit at $15.77 billion in the January- to-May period in 2018. This was 55.12 percent higher than the $10.16-billion deficit in the same period in 2017.
“Goods Trade in May was up but imports grew faster than exports, thereby widening the current account deficit,” Socioeconomic Planning Secretary Ernesto M. Pernia told the BusinessMirror on Tuesday.
“In any case, there’s typically a lag before currency depreciation favors exports.” In May the PSA said exports posted a contraction of 3.8 percent to $5.76 billion in May 2018, from $5.99 billion in May 2017.
The country’s exports have not posted any growth this year with the highest decline of 6.8 percent posted in March 2018.
Imports, meanwhile, increased 11.4 percent to $9.46 billion in May 2018 from $8.49 billion in the same month of previous year.
The President’s economic team said the depreciation of the peso will have a positive impact on the country’s exports. Based on data from the Central Bank, the peso has averaged 50 to 53 to the dollar since July 2017.
Pernia said, however, it would be hard to predict how long the lag time would be with regard to the benefits of a weak peso on the country’s exports.
“[It] depends on many factors,” Pernia said. “[These factors are] mostly exogenous—protectionist policies, trade war.”
Forest product exports
The “silver lining” in the latest PSA data, Pernia said, is that the month-on-month growth of the country’s exports is improving.
The Neda said the contraction in merchandise exports slowed to 3.8 percent in May 2018, from 4.9 percent in April, partly supported by sustained growth in exports of forest products.
Pernia said in a Neda statement 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,” he said.
Free-trade agreements
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 recent ratification of the Philippines-European Free Trade Association would boost exports to member-states, such as Iceland, Liechtenstein, Norway and Sweden.
“Successful negotiations for the PH-EU FTA are expected to secure more permanent preferential duties for Philippine export products compared with the EU Generalized System of Preferences [EU GSP+], thus further expanding market base,” Pernia said. Also, vehicle auto parts, coconut, bananas, travel goods and handbags, tuna, carrageenan and activated carbon should be
given better exposure as these could potentially become major drivers of exports growth.
The PSA said total merchandise trade grew by 5.1 percent to reach $15.2
billion in May 2018, backed by imports that picked up 11.4 percent that
month—after a strong performance of 23.1-percent growth in April 2018.
This was driven by increased inbound purchases of mineral fuels, lubricants and related materials, capital goods, consumer goods, and raw materials and intermediate goods.
Top export markets
The country’s top 10 total exports in May 2018 amounted to $4.68 billion or 81.2-percent share to the total exports, while the top 10 import sources for imports in May 2018 amounted to $7.37 billion, or 77.8 percent of the total imports.
The Philippines’s top 3 export markets in May were the US with $840.15 million or a share of 14.6 percent of total exports; Hong Kong, $796.47 million or 13.8 percent; and China, $761.40 million or 13.2 percent.
The top import sources of the country were China with $1.92 billion or 20.3-percent share of the import payments; Korea, 10.3 percent or an import value of $978.61 million; and Japan, $901.27 million or a share of 9.5 percent.
Image credits: Nonoy Lacza