Trade gap narrows slightly in August

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Metro Manila (CNN Philippines, October 10) — The balance of trade continues to be in the negative, with the double-digit import expansion led by food- and construction-related items overshadowing exports' tepid growth.

The trade deficit in August is at $3.51 billion, $4 billion less than in July, 28 percent more than the $2.74 billion deficit in the same month last year, according to the latest data from the Philippine Statistics Authority.

This brings the year-to-date trade gap to approximately $26 billion, or 65 percent wider than the $15.791 billion gap recorded in the same 8-month period last year.

Imports continued to expand by 11 percent, or to $9.68 billion from $8.72 billion last year. The country imported 68.4 percent more cereal and cereal preparations, which include grain like rice and corn, in August. There was also 63.6 percent more iron and steel imported that month.

Other top imports for August are mineral fuels, lubricants and related materials (42.3 percent), transport equipment (29.2 percent), plastics in primary and non-primary forms (12.9 percent), electronic products (9.9 percent), miscellaneous manufactured articles (5.0 percent), industrial machinery and equipment (4.4 percent), and telecommunication equipment and electrical machinery (0.03 percent).

China continues to be the top source of imports at 19.9 percent, followed by South Korea at 14.8 percent and Japan at 11.3 percent. Rounding out the top ten source of imports are Thailand, the U.S., Indonesia, Singapore, Taiwan, Malaysia and Germany.

Exports, on the other hand, grew by a lukewarm 3.1 percent.

Exports of electronic products, grew by 7 percent in August, to $3.35 billion from $3.13 billion in August. Electronic products amount to 54.3 percent of the nation's total exports. However this was brought down by contractions and tepid expansions of other exports.

China is also the main destination of Philippine exports, followed by the USA, Hong Kong, Japan, Singapore, Germany, Taiwan, Thailand, Netherlands, and South Korea.

ING Think, the think tank arm of Dutch-based ING Bank, said that the weaker peso, along with weak exports, has worsened the trade gap.

"Despite protracted weakness in the Philippine Peso, exports continue to underperform, posting a 2% contraction YTD and only a feeble 3.1% growth in August.  In turn, the weaker currency may have fomented even more inflationary pressure given the hefty import bill related to consumption and transportation," said Nicholas Mapa, Senior economist for ING Think, in a statement.

He also noted that the month's imports is in line with the government's aggressive infrastructure spending program, along with that of the private sector.

While the Bangko Sentral ng Pilipinas' response of increasing interest rates could stem both inflation and currency weakness alike, Mapa said exports would also have to improve to narrow the trade gap.

"Exports will need to rebound in the coming months to truly make some headway. The prognosis is for the current account to remain in the red, exerting further pressure on the local unit despite BSP's already very hawkish stance," said Mapa.