July 23, 2018, 12:07 am
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Trade deficit widens to 5-mo. high

The Philippines’ trade deficit widened further in May to a five-month high, adding further strain on the peso that has been hovering at 12-year lows.

The deficit widened 6.3 percent to $3.7 billion, the Philippine Statistics Authority said yesterday, the highest level since December, and followed a downwardly revised $3.48 billion gap in April.

Imports of goods climbed 11.4 percent to surpass $9 billion for the first time, while exports shrank 3.8 percent to $5.7 billion in May, marking the fifth straight month of decline.

The import-driven trade gap is expected to worsen the current account deficit this year, which could spell more trouble for the peso, one of Asia’s worst performers this year.

“The widening trade deficit will continue to put downward pressure on the peso, which has already been depreciating against the US dollar during 2017 and first half of 2018,” said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit.

The peso, which slightly weakened to 53.49 per dollar in morning trade, has lost more than 6 percent against the dollar so far this year due to rising interest rates in the US and deterioration of the Philippines’ external account.

The currency closed weaker at 53.46 from 53.4 on Monday on a total volume of $616.4 million.

For the whole year, imports were expected to grow 11 percent driven by demand for capital and consumer goods, while exports were projected to rise 10 percent, according to the central bank.

The Bangko Sentral ng Pilipinas expects the country to end the year with a current account deficit of $3.1 billion, wider than an earlier forecast of $700 million, and higher than the previous year’s $2.52 billion gap.

The Philippines, like other Asian economies that have external deficits, is under pressure to follow the US Federal Reserve in shifting away from low interest rate settings or risk capital flight as investors seek higher yielding assets.

Joey Cuyegkeng, economist at ING bank in Manila, said the peso’s decline “could worsen in the absence of a decisive monetary response to rising inflation.”

The central bank raised interest rates last month for the second time in six weeks to tame inflation, becoming the region’s second central bank to deliver two hikes in a short time, after Indonesia.

Khoon Goh, head of Asia research at ANZ, said in a tweet he expects the peso to weaken further to 54 to the dollar by year end. That would be the lowest in 13 years. – Reuters 
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