Strong peso provide wings to Philippines import growth, unlikely to sustain pace

A relatively strong peso boosted growth of imports in Philippines; however, the pace is unlikely to sustain in the near future. The strong growth was led by purchase of capital goods, amid the surge in domestic investment.

Import growth came in strong at 15.4 percent y/y during June. Imports of capital goods were up by some 70 percent during the second quarter of this year, which is a record-high. The total value of goods imported by the country in June amounted to USD6.85 billion, an increase of 15.4 percent from the USD5.94 billion recorded during the same period a year ago. Imports registered a decline of 5.6 percent in February, recovering in March and the succeeding months.

Additionally, there has also been a frontloading of investment ahead of the change in government this year. It is also important to note that the peso has been moving more in line with the regional currencies in recent months. The peso has no longer outperformed its regional counterparts, as how it did from 2014 up until mid-2015.

Imports of consumer goods likewise increased 32.6 percent to USD1.17 billion in June 2016. Higher spending were observed for both durable goods, particularly passenger cars and motorcycles, and non-durable goods such as food and live animals.

While strong remittance flows would continue to support the peso, the authorities have been increasingly concerned about any potential impact on export growth. If the outperformance in 2014 to mid-2015 has partly led to the surge in import growth this year, then some easing of import demand is likely to follow the moderation in peso’s relative strength as well. Meanwhile, import growth is unlikely to be sustained at current pace, DBS reported.