PH trade imbalance widens

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The trade imbalance widened sharply in July to $3.55 billion from only $1.31 billion in June, the Philippine Statistics Authority (PSA) said on Tuesday.

As a result, the seven-month trade imbalance is a gaping $22.49 billion thus far this year versus only $13.06 billion a year ago.

According to the PSA, imports pushed 31.6 percent higher to $9.4 billion even as exports only managed to inch up 0.3 percent to $5.85 billion, the second time that exports actually climbed given the demand for the country’s goods at a time when the global environment has not been as robust as before.

From where Nicholas Mapa sits, senior economist at ING Bank Manila, the weak peso contributed to the weak trade performance.

He noted the peso fell 5.5 percent in July by an average 4.3 percent over a seven-month period and by six percent as at end-July.

“Recent strong rhetoric from the central bank in response to soaring inflation and to a weakening peso could help to stem the currency’s weakness and prevent the trade gap from widening further,” Mapa said.

Colleague Joey Cuyegkeng, also senior economist at ING Bank, securities traders already factored in accelerated double-digit import growth for the period.

On fixed-rate Treasury notes or FXTN, Cuyegkeng said investors see no reason for greater accumulation of the instruments “at these yields” and thus trading volumes should not show marked changes.

In a number of ways, Cuyegkeng’s sentiment reflect in part that of National Treasurer Rosalia de Leon, who on Monday said both the debt and equity markets behave “on expectations of higher rates” anticipated from the Bangko Sentral ng Pillipinas (BSP) whose scheduled rate-setting day is on 27 September this year.

This is when the rate at which the BSP borrows from or lends to banks is cast and made permanent over the subsequent six weeks. Such rates also determine how the various lending institutions in the country would price their own borrowing and lending activities with clients and with each other.


The decline was driven by the US dollar’s strength, the normalization of the US Fed’s monetary policy and the uncertainties from the trade war between the US and China.

De Leon previously said the BSP was likely to make policy adjustments as wide as “50 basis points” in less than two weeks.

Land Bank economist Guian Angelo Dumalagan said developments in the intervening period and more particularly the adjustment made in computing the consumer price index by government statisticians “definitely increases the chance of a 50-bp rate hike from the BSP this month.”

He further noted the average yield on 28-day term deposit facility of the BSP is already “above the 4.5 percent upper bound of the interest rate corridor. This, along with elevated inflation, suggests that a rate hike this month is almost certain.”

In reading the macroeconomic numbers, an ING Bank study observed that “additional rate hikes are likely in the next six to 12 months to also bring real policy rates top positive and maintain interest rate differentials.”

Such differentials are important yardsticks and those markets that fail to respond accordingly have to contend with sharply weakened currencies or interest rate regimes that render markets unattractive for mobile global capital.

Union Bank of the Philippines chief economist Carlo Asuncion also forecasts a further peso weakening: “The peso’s weakness is expected to linger due to external pressures brought by contagion fears among emerging markets.”

According to him, the decline was driven by the “US dollar’s strength, the normalization of the US Fed’s monetary policy and the uncertainties from the trade war between the US and China.”

Joshua Lao

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