Through Lourdes O. Pilar† Researcher
The country’s trade deficit narrowed in February as exports grew at the fastest pace in six months on the back of stronger demand, while import growth slowed.
Goods export receipts in February rose 15% year-on-year to $6.159 billion, preliminary data from the Philippine Statistics Authority showed on Friday.
It recovered from revised growth of 9% in the previous month and a reversal from the decline of 1.4% in February last year. Export growth was the fastest in six months that month or since the 18.9% expansion in August.
The value of the outbound freight shipment in February was the highest level in two months or since last year’s $6,279 billion.
Meanwhile, the country’s import bill rose 20.1% to $9.688 billion in February, down from the revised rate of 27.7% the previous month.
This was the slowest import growth in 12 months or since the 9% increase in February last year.
Imports in February were the lowest level in nine months or since the $9.122 billion recorded in May last year.
This brought the February deficit in goods trade to $3.529 billion, larger than the $2.707 billion deficit in the same month last year, but smaller than the $4.716 billion gap in January.
It was the smallest trade deficit in six months or since the $3.522 billion in August 2021.
To date, the trade balance rose to a deficit of $8.245 billion, compared to the trade gap of $5.586 billion last year.
For the two-month period, exports rose 11.9% year-on-year to $12.205 billion. This is more than the 6% growth predicted by the Development Budget Coordination Committee for this year.
Imports, on the other hand, rose 24% to $20.450 billion, reaching more than 10% by the government by 2022.
“Our previous efforts to ensure 100% operational capacity for the export sector enabled the sector to meet the growth in global demand. Momentum picked up and we continued to develop more export champions,” Trade Secretary Ramon M. Lopez said in a statement.
Outbound shipments of manufactured goods made up the largest share – 81.7% – of total exports in February. The value rose 10.6% year over year to $5.029 billion.
Electronic products, which made up more than half of manufactured goods and total exports that month, rose 15.1% to $3.444 billion. Three-quarters of electronic product sales came from semiconductors, which grew 20.4% in February to $2.595 billion.
The country’s orders for raw materials and semi-finished products, meanwhile, accounted for 37.7% of February’s total import bill. It was $3,649 billion, up 14.3% year over year.
Imports of capital and consumer goods were valued at $2.806 billion (+3.6%) and $1.488 billion (+8.4%) in February.
The surge in exports in February reflected a pick-up in global demand as many economies began to lift restrictions from the pandemic era, analysts said.
“The resurgence in global demand for semiconductors and electronic products also boosted exports significantly,” senior economist Cid L. Terosa of the University of Asia and the Pacific (UA&P) said in an email.
mr. Terosa added that the geopolitical conflict between Russia and Ukraine last February shook global markets and caused a month-on-month drop in overall trade. Russia invaded Ukraine on February 24.
“While year-over-year total trade in February 2022 was still a significant improvement over the previous year, it was slower than year-over-year growth in January 2022,” he added.
Total trade – or the sum of good exports and imports – fell 5.7% month over month in February to $15.847 billion. Year-over-year it increased by 18.1%.
Export and import growth could come to a halt as the ongoing war between Russia and Ukraine impacts global commodity markets and logistics.
Since the invasion, crude oil prices worldwide have risen to multi-year highs of over $100 a barrel in late February amid supply concerns as Russia is the world’s second largest producer of the commodity.
“Export growth increased due to increased demand around the world. Imports declined due to disruptions in the global supply chain since the outbreak of war in Eastern Europe and due to relatively slower growth of imported products in the Philippines,” said economist John Paolo R. Rivera, Asian Institute of Management economist, in an email.
“The improved situation on the world market made exports strong [in February]said Sergio R. Ortiz-Luis, Jr., president of the Philippine Exporters Confederation, Inc. (Philexport), in a telephone interview on Friday.
The United States, which accounted for 15.7% (or $966.66 million) of total receipts, was the top export destination in February. It was followed by Japan (14.6%) and China (13.1%).
China, meanwhile, was the country’s main source of imports in February, accounting for 18.3% (or $1.772 billion) of the total bill, followed by South Korea (10.8%) and Japan (9.4%) .
SEEN FAULTS
But as global trade begins to improve as many economies reopen, the ongoing conflict between Russia and Ukraine could dampen it in the medium term, analysts say.
“While the momentum is underway, the war in Eastern Europe suddenly led to disruptions in the recovering trade performance. Therefore, the full potential of recovery cannot be exploited,” said AIM’s Mr Rivera.
“Trade is not growing as fast as it should, given the relaxed pandemic restrictions,” he added.
The government’s trade targets are unlikely to be met this year, especially export growth, as the sector was hit by the pandemic, said Philexport’s Ortiz-Luis.
“I’m not sure we can meet the DBCC’s export target in 2022… Exports were hit by the pandemic, I don’t think we’ll recover that target, maybe not until 2023,” he said.
mr. UA&P’s Terosa expects both month-over-month and year-over-year trading performance to continue declining in March.
“I expect the trade gap to widen further as petroleum product prices continued to rise above levels before the Russia-Ukraine conflict erupted in late February,” he said.
“It would be difficult to participate positively in global markets as everyone’s attention is focused on securing domestic supplies of essential raw materials,” he said.
“It will be difficult to meet both export and import targets [this year] if geopolitical tension between Russia and Ukraine will ease,” Terosa said.
Lockdowns in China could also play a role in holding back trade. Since the Philippines is a small player in the global market, it has no choice but to bear the brunt of external forces that suppress larger export and import flows,” he added.