Trade deficit surges to record levels in November photo WSJ
Economy

Trade deficit surges to record levels in November

Jan 12, 2022, 7:00 AM
Rose De La Cruz

Rose De La Cruz

Writer/Columnist

The country’s trade deficit in November further widened with exports growing at 6.6 percent and imports at 36.8 percent to $4.7 billion, leading to a cumulative deficit of $37.92 billion from January to November. The deficit surged 119.5 percent in November and 71.2 in the 11-month period, according to data from the Philippine Statistics Authority.

With exports growing at 6.6 percent and imports at 36.8 percent in November 2021, the country’s trade deficit widened to $4.7 billion, leading to a cumulative deficit of $37.92 billion from January to November. The deficit surged 119.5 percent in November and 71.2 in the 11-month period, according to data from the Philippine Statistics Authority.

“Our external trade may be affected through potentially lower domestic demand amongst our biggest trading partners due to specific people movement restrictions to shutdown Omicron impact,” UnionBank Chief Economist Ruben Carlo O. Asuncion told the BusinessMirror.

“With supply chain issues, we may not have seen the last of this particular challenge yet, even as the pandemic rages on with the Omicron variant leading the way,” he added.

Asuncion also said they expected the country’s external trade performance since their trade deficit forecast was at $4.3 billion for November.

He added that their initial exports growth forecast was pegged at 8.6 percent and imports performance was estimated at 33.7 percent.

Asuncion said the reopening of the economy in recent months was the primary driver of the growth in the country’s imports and the underperformance of exports relative to imports growth.

Global demand challenges

Asuncion said this can still be rooted in global demand challenges, including supply chains that have yet to return to pre-pandemic normal.

“The gap shown in November was extreme. That will not likely happen.But we should expect the BOT [Balance of Trade] deficit will still hit a new record,” University of Asia and the Pacific (UA&P) economist Victor A. Abola also said in an e-mail.

Ateneo Center for Research and Development (ACERD) Associate Director Ser Percival K. Peña-Reyes said the current trend of the trade deficit will likely continue.

Peña-Reyes said global demand was “still pretty much subdued” and this will affect the country’s external trade performance, primarily exports. He added that the elections will also widen the country’s trade deficit.

He said the anticipation of greater economic activity in the country this year, due to the Presidential polls, could also be a factor in shipping delays and higher transportation costs.

The ACERD Associate Director said businesses may be stockpiling their inputs and beefing up their inventories to ensure that their production continues throughout the year.

“Like us, many countries are reeling from omicron. If this tapers down this month, as experts predict, hopefully, the damage to the economy won’t be as extensive. If this drags on beyond this month to the rest of the quarter, of course, growth prospects will be dampened,” he told this newspaper.

Action for Economic Reforms Coordinator Filomeno Sta. Ana III that while exports grew, the growth remains “anemic” and that import growth still faces a lot of uncertainty caused by the omicron variant and the 2022 elections.

However, Sta. Ana said supply chain problems may be temporary and that the situation is bound to improve—especially if Omicron will not disrupt global supply chains.

External trade

PSA data showed that the fastest growing exports in November were Telecommunications which grew 330.6 percent; Other Coconut Products, 305.3 percent; Christmas Decor, 208.1 percent; Iron Ore Agglomerates, 163.7 percent; and Copra Oil Cake or Meal, 149.2 percent.

In November, the deepest contractions in exports were posted by Plywood at 54 percent; Consumer Electronics, 35.2 percent; Unmanufactured Tobacco, 33 percent; Tuna, 26 percent; and Gold, 23.2 percent.

The fastest growing imports were: Metalliferous Ores and Metal Scrap with a growth of 1,295.2 percent; Chemical Compounds, 360.2 percent; Medicinal and Pharmaceutical Products, 231.1 percent; Mineral Fuels, Lubricants and Related Materials, 141.2 percent; and Cereals and Cereal Preparations, 132.4 percent.

The deepest contractions in import performance were posted by Artificial Resins with a decline of 52.2 percent; Office and EDP Machines, 49.2 percent; Automotive Electronics, 31.7 percent; Others, 20.7 percent; and Home Appliances, 18.3 percent.

For the year or the January to November period, the fastest-growing exports were Telecommunication with a growth of 132.7 percent; Ceramic Tiles and Décor, 125.2 percent; Fine Jewelry, 87.9 percent; Natural Rubber, 80.5 percent; and Other Coconut Product, 76 percent.

Exports that posted the largest declines were Iron Ore Agglomerates which contracted 51.6 percent; Automotive Electronics, 47 percent; Bananas (Fresh), 33.4 percent; Gold, 30.4 percent; and Mangoes, 22 percent.

Imports

In terms of imports, the commodities that posted the fastest growth in the 11-month period were Mineral Fuels, Lubricants and Related Materials with a growth of 85.9 percent; Other Special Transactions, 83.6 percent; Metalliferous Ores and Metal Scrap, 72.5 percent; Medicinal and Pharmaceutical Products, 62 percent; and Non-Ferrous Metal, 59 percent.

The imports that posted the deepest contractions were led by corn which declined 47.6 percent; Chemical Compounds, 31.2 percent; Office and EDP Machines, 19.1 percent; Tobacco, unmanufactured, 13.6 percent; and Automotive Electronics, 10.2 percent.

Nonetheless, electronic products continued to be the country’s top export in November 2021 with total earnings of $3.71 billion. This amount accounted for 59.2 percent of the total exports during the period.

Further, most of the imported goods were electronic products with an import value of $2.94 billion or a share of 26.8 percent to the total imports in November 2021.

Asian Institute of Management (AIM) economist John Paolo R. Rivera said that improved trade performance was “expected” as the pandemic situation in the country improved from September until December.

“Because of increased demand locally due to a more active economy, imports were expected to gain steam. Exports, on the other hand, were also expected to perform given the varying pace of economic recovery by our trading partners,” he told BusinessWorld.

“The last quarter of 2021 was a good window for the economy to get moving until the Omicron variant threatens this recovery process momentum,” Rivera said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said higher fuel imports was one of the factors for the widening trade gap.

“Costlier imported crude oil translated to overall fuel imports rising sharply, which in turn helped bloat the trade deficit to its current record high,” he said. “With global crude oil prices staying elevated to open the year, the Philippines could continue to experience wider trade deficits in the near term.”

Outlook

The government’s trade targets for 2021 were on track to be met, but the fresh surge in new coronavirus cases may hurt this year’s trade growth assumptions.

The interagency DBCC expects exports and imports to grow by 6% and 10%, respectively, this year.

“The problem would be felt in the first quarter of 2022 due to Omicron. But for 2021, I think the government will meet its targets for exports and imports,” Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. said.

AIM’s Rivera expects the 2021 targets to be met with “slim margin or slim shortfall.”

“Given the economic conditions during the last quarter of 2021 and the performance in the previous quarters, the Delta variant surge was the most significant threat to meeting economic target performances,” he said. “The threats were significant in altering the growth trajectories of trade figures even in the first quarter of 2022.”

ING’s Mapa said the ballooning trade gap pushed the country’s current account balance to a deficit in 2021. He expects this trend to continue this year.

The current account shows a country’s transactions with the rest of the world. It includes trade in goods and services, remittances from migrant Filipino workers, profit from Philippine investments overseas, interest payments to foreign creditors, and gifts, grants, and donations to and from abroad.

“With the current account expected to remain in deficit territory, pressure on PHP (Philippine peso) to weaken should persist in 2022 although other factors such as the looming Fed rate hike will likely play a major role in the currency’s trajectory this year,” Mapa said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note sent to reporters that the recent surge in new coronavirus cases will be a drag on economic recovery prospects and on trade.

“Lingering concerns over the Omicron variant could also add to the disruptions in the global supply chains amid isolation and quarantine for increased number of infected workers for many businesses and industries worldwide,” he added.

Ricafort said the trade deficit could be sustained at the $4-billion levels per month this year for as long as the global oil prices remained elevated as the pandemic-induced supply chain disruptions continue.

“For the coming months, further pickup in imports and exports could also be supported by still near-record-low short-term interest rates that could help spur greater demand for loans for new investments that entail the more importation and also more export production as well as more jobs and other business opportunities in the supply chain and for related businesses and industries,” Ricafort said.

Tags: #PSA, #tradedeficitballoonsinNovember, #economy


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