Economists downplay widening trade gap

Economists believe the country’s widening trade deficit is not a cause for alarm as higher importation of capital machinery will fuel sustained economic growth.

Nicholas Antonio Mapa, associate economist at Bank of the Philippine Islands (BPI), said the surge in capital machinery is one indicator the Philippines is gearing up for faster growth.

He added it is also possible that the country is finally entering a more balance consumption-investment led growth strategy.

The country’s gross domestic product (GDP) accelerated to seven percent in the second quarter of the year from 6.8 percent in the first quarter on strong boost from electionrelated spending.

“The Philippines, registering a blistering pace of growth at seven percent in the second quarter of 2016, looks poised to prepare for the growth momentum in the coming months by way of increased investments seen in capital goods importation,” he said.

This brought the average GDP expansion to 6.9 percent in the first half from 5.5 percent in the same period last year. Economic managers penned a GDP growth of between six and seven percent this year.

“Consumption growth has long been a staple for Philippine GDP but we are finally seeing a shift to a more balanced picture with the investment cycle kicking in,” Mapa said.

According to Mapa, the Philippine trade gap yawned to its widest seen in history as the Philippine economy continues to binge on imported capital machinery while exports have sustained successive months of weakness due to global economic growth stuck in low gear.

With four months left in the year, the Philippines has racked up quite a trade deficit with the import bill ballooning to $52 billion while exports contracted by 7.8 percent to $36.4 billion as global demand dries up.

Despite the historical widening of the trade gap, Mapa said the silver lining remains as capital goods importation is up by a whopping 50.22 percent, accounting for 33 percent of the total import bill.

On the other hand, Barclays said the current account (CA) balance of the Philippines was poised to reverse but would still remain in surplus territory amid the wider trade deficit brought about by strong import growth and easing export earnings.

The investment bank has lowered its CA surplus this year to 0.3 percent of GDP instead of two percent of GDP this year after averaging 3.5 percent of GDP over the past few years.

Next year, Barclays expects a CA deficit of one percent of GDP.

“The current account balance looks poised to reverse course,” it added.