Philippines: Trade extends double-digit growth streak, but Delta may reverse some gains

MANILA, Philippines — Foreign trade posted another month of double-digit growth in July, thanks to favorable base effects that magnified both exports and imports expansion, but the global spread of highly-infectious Delta variant could slow down recovery momentum.

What’s new

External trade rose 19.2% year-on-year to $16.13 billion in July, the Philippine Statistics Authority reported Thursday. This was slower than the 32.5% annualized rate of increase in June, but was a turnaround from 16.2% decline a year ago.

Data showed exports sustained their upward momentum after expanding 12.7% year-on-year to $6.42 billion in July, posting its fifth consecutive month of growth. Similarly, imports grew at an annualized rate of 24% to $9.71 billion in July.

The country’s trade deficit, which happens when imports bill surpasses export sales, widened 54.1% year-on-year to $3.29 billion in July, which was nevertheless narrower than $3.4 billion gap recorded in the preceding month.

Why this matters

A recovery in trade is a good news for the Philippines, which suffered from historic economic meltdown last year after the pandemic triggered disruptive lockdowns.

For this year, the Bangko Sentral ng Pilipinas forecast goods exports to grow 10%, a turnaround the 11.3% contraction in 2020. Imports, on the other hand, are projected to reverse last year’s 22.9% implosion to expand 12% this year.

Specifically, a rebound in imports signifies improving demand at home as pandemic restrictions ease. However, the increase in inbound shipments is weakening the peso, which could fan inflation.

What an analyst says

For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, the latest trade figures show a Philippine economy benefiting from gradual economic reopening, but a fat trade deficit may further pressure the local currency.

Mapa also said renewed lockdowns in August amid a Delta-fueled spike in infections would show “a pullback in trade activity”.

“As the trade gap approaches pre-Covid levels, we forecast the country’s current account to reverse into deficit as well. Current account deficits coupled with possible portfolio outflows in the coming months due to the Fed taper translates to more pressure on the local currency,” Mapa said.

“With BSP signaling it would refrain from hiking policy rates this year, it looks like PHP will remain on the backfoot to close out 2021,” he added.

Other figures

  • Electronic products, such as those used for manufacturing, topped the list of exports in July at $3.69 billion.
  • Import bill went up mainly due to increased volume of fuel shipments, while crude oil prices rose.