Trade deficit narrows to USD 3.95B in June

The Philippines’ trade-in-goods deficit narrowed to USD 3.95 billion in June, as double-digit export growth was driven by frontloading in the run-up to higher US tariffs, the Philippine Statistics Authority (PSA) said on Wednesday.

Preliminary data from the PSA showed the country’s balance of trade in goods — the difference between the values of exports and imports — stood at a USD 3.95-billion deficit in June, slimmer than the USD 4.34-billion gap a year earlier. It was the widest trade deficit since the USD 3.97-billion gap seen in April.

Month on month, the trade gap widened from the revised USD 3.63-billion deficit in May.

Outbound shipments of Philippine-made goods jumped by 26.1% year on year to USD 7.02 billion in June, marking the sixth straight month of annual expansion. This was also the fastest growth in exports since 28.2% in April 2024.

Month on month, exports slid by 4% from USD 7.31 billion in May. Export receipts for June were also the lowest since USD 6.78 billion in April.

On the other hand, the value of imports picked up 10.8% year on year to USD 10.98 billion in June from USD 9.9 billion in the same month a year ago.

The growth in imports was the fastest since 17.8% logged in March.

Month on month, imports inched up by 0.3% from USD 10.95 billion in May.

For the first semester, the trade deficit narrowed to USD 23.97 billion from the USD 25.06-billion deficit a year ago.

The country’s balance of trade in goods has been in the red for over a decade or since the USD 64.95-million surplus in May 2015.

In the January-to-June period, exports increased by 13.2% to USD 41.24 billion, while imports rose by 6% to USD 65.22 billion.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said in a research note that trade was “flattered hugely by base effects in June,” as exports and imports saw a decline last year.

“The widening of the trade deficit would’ve been more pronounced if not for the still-favorable seasonal effects in play, particularly on the export side,” he said.

Frontloading

In a note, Chinabank Research said exports grew faster in June amid signs of frontloading by US importers due to uncertainty over tariffs.

US President Donald J. Trump in April announced a 17% “reciprocal tariff” on Philippine goods, but implementation was paused until July. Earlier this month, Mr. Trump set a 19% tariff on Philippine goods after a meeting with Philippine President Ferdinand R. Marcos, Jr. It will take effect on Aug. 1.

“Shipments to the US — the Philippines’ top export market — surged (+35.2%), suggesting some frontloading by US importers before higher US tariffs take effect, alongside some base effects (i.e., exports to the US fell 19.8% in June 2024),” Chinabank Research said.

In June, the United States was the top destination for Philippine-made goods at USD 1.22 billion (17.3% share). It was closely followed by Hong Kong (USD 1.065 billion or a 15.2% share), Japan (USD 974.8 million or a 13.9% share), and China (USD 733.99 million or a 10.5% share).

However, Mr. Chanco pointed out the month-on-month decline in exports in June was caused by the “broad-based pullback in demand from a number of key markets, namely, Japan (-10.1%), Hong Kong (-7.6%), and China (-1.6%).”

By major type of goods, exports of manufactured goods went up by 27.3% year on year to USD 5.53 billion in June. This made up the bulk of total outbound sales during the month.

Electronic products, which accounted for more than half of exports and 70.3% of manufactured goods, rose by 30% to USD 3.89 billion.

Semiconductors, which made up a little over 40% of exports and 74% of electronic products, climbed by 24.6% year on year to USD 2.89 billion.

“Month on month, however, semiconductor exports were flat, underscoring the sector’s fragile recovery. A risk is the potential imposition of US tariffs on currently exempt semiconductors, depending on the result of the US’ national security probe into chip imports,” Chinabank Research said.

Silver linings

Meanwhile, Mr. Chanco said there are a few silver linings in the import data, “which is a far more important health-check for the Philippines’ domestic demand driven economy.”

“Specifically, the recovery in previously subdued capital goods imports is going from strength to strength… with their continued surge in June masking a poor month for consumer goods and purchases of raw materials and intermediate goods,” he said.

PSA data showed imports of capital goods grew by 31.1% to USD 3.71 billion in June.

Chinabank Research said the surge in capital goods was “driven by a sharp rise in telecommunication equipment and electrical machinery (+30.4%), and transport-related assets such as aircraft, ships and boats (+702.4%).”

“This indicates that domestic service businesses remain optimistic even in the face of uncertainties,” it added.

Imports of raw materials and intermediate goods inched up 2.9% to USD 3.67 billion in June.

“Demand for consumer goods held firm (+13.1%), with household consumption benefiting from low and stable inflation and robust labor market conditions. The country’s pledge to slash tariffs on automobiles from the US may contribute to the increase in this category moving forward,” Chinabank Research said.

By commodity group, electronic products, which accounted for more than a fifth of total imports, went up by 14.9% to USD 2.56 billion in June.

Orders of semiconductors, which accounted for 70% of electronic products and 16.3% of total imports, rose 22.8% year on year to USD 1.79 billion in June

China remained the main source of imported products, which accounted for 28.2% of the total or USD 3.1 billion. Japan followed with a 7.9% share or USD 870.15 million and South Korea’s 7.8% share or USD 853.26 million.

Ateneo de Manila University economics professor Leonardo M. Lanzona said the trade data showed strong growth in exports to other markets which could help offset a potential slowdown in demand from the US.

“The Philippines appears to be maintaining strong growth despite trade headwinds, suggesting domestic demand and other sectors are compensating for trade challenges,” Mr. Lanzona said. “It is recommended then that we strengthen the domestic economy at least for now but make sure that this leads to greater exports later.”

The Development Budget Coordination Committee in June raised the export growth assumption for this year to 5% from 3%. It lowered the import growth assumption to 2% from 4%. — Pierce Oel A. Montalvo