MONDAY MACRO: Philippines’ trade deficit driven by imported products reveals a notable shift.
Filipinos’ affinity for imported products has contributed to the Philippines’ prolonged trade deficit, with a consistent pattern of importing more than exporting.
Import and export demands often mirror the economic cycle, rising during upswings and contracting during economic slowdowns. The Philippines currently finds itself in the latter, with a decline in imports.
Combined with other factors, these dynamics could suggest the possibility of enhancements in domestic production, offering optimistic prospects for the Philippine economy.
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Filipinos love imported products and they’re willing to spend money on them. Thanks to that, the Philippines have been in a trade deficit for so long now, importing more than it exports.
Nonetheless, the Philippines trade deficit sank by 27% to $3.51 billion in September 2023 compared to the same month a year ago amid a decline in both imports and exports.
Demand for imports typically moves in sync with the business cycle, expanding during economic upswings and decreasing during periods of economic slowdown.
It seems like the Philippines is the latter as it experienced a more significant year-on-year decline, contracting by 14.7% to $10.24 billion in September. This downturn surpassed the 13% contraction recorded in August, extending a losing streak that started in February 2023.
The reported decline in imports by the Philippine Statistics Authority in September suggests a slowdown in domestic demand and that businesses are prudently managing their inventory amid a softer demand environment.
The Philippines’ highest trade deficit of recent years was in April 2021 at $2.73 billion. This deficit was 1,361.5% higher compared to April 2020 as imports grew by 140.9% to $8.45 billion in April 2021 due to the reopening of the economy after the pandemic, while exports grew by 72.1% to $5.71 billion.
*No data published for the month of June 2022
We’re now back on the opposite side of the coin, as imports have dropped more than exports as of September 2023. Imports declined by 14.7% while exports declined only by 6.3%. Both drops for the month were due to the lower values of electronic products.
The larger decline in imports growth rate helped narrow the trade deficit down due to a much smaller decline in exports growth rate.
This suggests that Philippine companies are at least managing to align their manufacturing output with the increased foreign demand. As more foreigners buy Philippine products, the manufacturing industry should improve. In fact, manufacturing output is at its highest pace this September, measured in Volume of Production Index (VoPI), with a 9.1% growth.
All in all, this scenario signals potential improvements in domestic production, promising positive outcomes for domestic sales which should translate to higher corporate earnings in the upcoming months.
About the Philippine Markets Newsletter
“The Monday Macro Report”
When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.
Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.
Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.
Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.
Hope you’ve found this week’s macro chart interesting and insightful.
Stay tuned for next week’s Monday Macro report!
Regards,
Angelica Lim
Research Director
Philippine Markets Newsletter
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