Imports compression continues in Philippines, pointing to better Q3 GDP: ING Economics

The pullback in Philippines’ September imports, despite the drop in exports, means that net trade will likely not weigh on overall growth momentum in GDP accounting for the third quarter of this year, according to the latest research report from ING Economics.

The Philippines posted a trade deficit of $3.12 billion even as imports fell for a sixth month as exports snapped a string of five months’ worth of gains. The September trade gap brings the YTD deficit to $28.1 billion, wider by 9 percent from the $24.97 billion gap seen in 2018. Despite the wider deficit, the Peso has still managed to post quite a strong performance.

This is probably because of positive current account movements (remittances and BPO receipts) as well as financial flows helping to lift the currency.  

Capital goods imports remained modest (+0.3 percent) with a huge drop-off in “planes and ships” (-41.4 percent) and photographic equipment (-21.5 percent) while heavyweights such as electrical machinery, specialized machinery and construction vehicles were up 7.1 percent, 6.7 percent and 6.4 percent respectively.

Meanwhile, raw materials (-23.1 percent) and fuel (-14.5 percent) proved to be the biggest drag on import demand given the movement in global crude oil prices and with the government drawing from the stores of construction equipment stockpiled during the budget delay.

The pullback in imports and positive run of exports until the September reversal means that even though net trade is still in deficit, the trade sector could provide a boost to GDP in 3Q19. For the quarter, 3Q19 saw a 24 percent improvement from the same period in 2018 and this development should help bolster year-on-year 3Q19 GDP, the report added.

The September trade report also shows some green shoots for the return of investment activity.  After dropping substantially in 2Q, capital formation is set to rebound in 3Q and beyond with capital goods imports picking up after stalling in the first half of the year.

"Monetary easing and a general improvement in risk sentiment has pulled corporates out of the woods and they are now bolstering the consumption-heavy growth story. This development, together with a report showing improved farm output helps support our forecast for a 6.3 percent GDP expansion in 3Q19," ING Economics further commented in the report.