Philippine Peso Slumps on Record Trade Deficit Figures

  • Trade¬†shortfall was $2.8 billion, largest since 1980
  • Imports gained 17% from year earlier, exports rose 14%

The Philippines posted its biggest trade deficit since data became available, fueled by a rapidly expanding economy. The currency slumped to its weakest level since 2006.

Key Points

  • The trade gap widened to $2.8 billion in May, the Philippine Statistics Authority said in a statement Tuesday. That’s the highest since at least January 1980.
  • The median estimate in a Bloomberg survey of nine economists was for a $1.5 billion shortfall
  • Exports rose 14 percent from a year ago to $5.5 billion; imports jumped 17 percent to $8.2 billion

Big Picture

Import demand in the Philippines is surging as the government powers ahead with an ambitious infrastructure program, boosting economic growth to more than 6 percent, among the fastest in the world.

As the nation’s current account balance swings from a surplus to a deficit, that’s removing a key support for the currency and the government’s credit rating. With remittances also volatile, the peso has become Asia’s worst-performing currency this year and dropped to its lowest level against the dollar since 2006 on Tuesday.

Economist Takeaway

  • “The deficit widening is something that’s really consistent with an economy that’s powering ahead and doing very well,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The deficit will probably stay large and that would imply more pressures on the currency, more depreciation pressure on the peso over that period.”
  • The bigger-than-expected trade deficit underscores that the currency’s underperformance this year “is a result of a confirmation of a more challenging current account,” Joey Cuyegkeng, ING Groep NV senior economist in Manila said in note.

Other Details

  • Electronics, led by semiconductors, remained the country’s top export product, increasing 18 percent in May from a year ago to $2.8 billion
  • The biggest increases in imports came from metal products, which climbed 44 percent, and transport equipment, which surged 38 percent
  • Biggest growth in imports came from South Korea, Indonesia and Japan
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