‘Subdued trade gap offsets export risk from US-China spat’

A subdued trade deficit continues to contradict export downside risk to the Philippines, triggered by the trade war between the US and China.

Jun Trinidad, economist at Lucio Tan-led Philippine National Bank (PNB), said the 11.8 percent drop in imports narrowed the trade deficit to $2.41 billion in August from $3.6 billion in the same month last year.

“A compressed trade deficit thus far contradicts export downside risk triggered by the US-China trade war. Missing a larger trade deficit risk also came during the quarter when seasonal import demand peaks prior to the yearend Christmas retail season,” Trinidad said.

Exports rose by 0.56 percent to $6.25 billion, while imports fell by almost seven percent to $14.91 billion.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit narrowed by eight percent to $24.7 billion from January to August.

Exports inched up to $46.64 billion during the period while imports slipped by 2.8 percent to $71.34 billion.

Trinidad said export data highlighted supply chain systems in Asia are still ‘functioning’ despite the US-China trade war to enable Philippine semiconductor electronics and other tech exports to post gains although hardly robust.

Meanwhile, he said lackluster demand from other key trading partners such as Japan and Singapore as well as weaker supply-chain activities for non-tech manufactures likely weighed on exports recently.

With exports to US and China still in positive territory despite the trade war, the economist said the export drag came from the markets of other key trading partners that may be suffering from the negative spillover effect of the US-China trade conflict like Japan, Singapore, Germany, Netherlands and Taiwan.

“This effect we can refer to as the indirect or ‘secondary’ impact of the US-China trade conflict. Those countries known to be major trading partners of the US and China weren’t spared the pain caused by the ongoing trade war that has sapped the strength of the US and China markets,” Trinidad said.

Trinidad also noted the lethargic re-stocking among local producers coupled with easing capital expenditures for much of the third quarter served as hindrance to localdemand driven imports.

“We sense broad-based, mediocre demand remains entrenched in the third quarter that’s likely to mirror third quarter gross domestic product growth of less than six percent,” he said.

For his part, Security Bank chief economist Robert Dan Roces said the bank has retained its full-year 2019 GDP(gross domestic product) growth forecast at 5.7 percent as the expansion slowed down to 5.5 percent in the first half due to the delayed implementation of the 2019 budget.

Roces said the latest decline in imports show that national government expenditures did not go into buying capital goods necessary for infrastructure spending, while the slowdown in the exports side also highlights difficulties in the midst of the protracted US-China trade war.

“While we believe that the country is largely insulated from the ongoing US-China trade debacle due in part to a lower exposure compared with some of our regional neighbors... And with no end in sight soon to the trade war, these expenditures have become a necessary condition to realize more growth as foreign direct investments and trade become unreliable,” Roces said.

Lindsey Ice, economist at Barcelonabased FocusEconomics, said the think tank sees a full year trade deficit of $45.6 billion on the back of a 1.8 percent climb in exports and a 2.9 percent rise in imports.