Shrinking trade gap supports currency

A significant narrowing in the trade deficit data in recent months might have “fundamentally helped” stabilize and even improved the peso exchange rate.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, citing Philippine Statistics Authority data, said the country’s trade gap dropped 21.9 percent to $3.68 billion in November from $4.71 billion in the same month in 2021.

“The narrower trade deficit may have resulted from the lower global crude oil prices that eased to among 1-year lows recently, at $74 per barrel for the Nymex crude oil benchmark,” Ricafort said.

He added that the near-record trade deficit earlier in 2022 may have fundamentally contributed to the weaker peso in the earlier months of 2022.

However, Ricafort said it is a “lagging economic indicator” since global crude oil prices had eased to among the lowest in more than a year.

Hence, he said the current trade deficit “could help ease” the country’s oil import bill and “improve the peso versus the US dollar,” and “help ease inflationary pressures for the coming months.”

Imports easing

While the country’s trade deficit in November 2022 decreased year-on-year, data from the PSA showed November’s trade gap was still wider than the $3.3 billion posted in October 2022.

“The annual slide in the value of imported goods in November 2022 was mainly due to the decreases in the values of four of the top 10 major commodity groups, with electronic products having the fastest annual decline of 10.1 percent,” PSA said.