Weak trade data add to growth risks

By Mark T. Amoguis
Researcher
THE Philippine economy — whose first-quarter performance will be reported today — could not rely on trade as sales abroad of locally made products shrank for the third straight month last March.

In a preliminary report, the Philippine Statistics Authority (PSA) said merchandise exports declined by 8.2% by the end of the first quarter, marking the biggest fall since the 10.9% drop in July 2016. This resulted in sales of $5.510 billion in March from $4.871 billion in February and $6.003 billion in March 2017.
Exports were sluggish for the entire quarter, contracting by 6% year on year to $15.754 billion from the $16.756 billion recorded in 2017’s comparable three months.
Meanwhile, the country’s import bill inched up 0.1% to $8.118 billion in March from last year’s $8.107 billion. Year to date, imports rose by 6.8% to $24.415 billion from $22.859 billion a year ago.
For March, the country’s trade deficit increased to $2.608 billion, widening from $2.104 billion in the same month last year. On a cumulative basis, the trade deficit widened to $8.661 billion in the first quarter, larger than the $6.103-billion shortfall recorded in the first quarter of 2017.
Both export and import growth figures were below the government’s targets of 10% and 11%, respectively, this year.
By major types of exports, manufactured goods — which make up 84.6% of the country’s total export goods — decreased 6% year-on-year in March to $4.663 billion.
Agro-based products (-22.6%), mineral products (-16.5%), and petroleum products (-13.6%) registered sharp declines as well during the month. On the other hand, exports of forest products went up 213.4%, but only make up a 0.4% share to $24.167 million.
For imports, capital goods — which account for 31.9% of total imports — declined 2.7% to $2.587 billion. Meanwhile, raw materials and intermediate goods — with a 38.2% share — went down by 2.6% to $3.097 billion.
Imports of consumer goods were also down, contracting 7.6% to $1.223 billion. Offsetting the declines were imports of mineral fuels, lubricant and related materials, which saw a 30.6% growth to $1.173 billion from $898.227 million previously.
DISAPPOINTING
Following the release of the trade data, the National Economic and Development Authority (NEDA) released a statement saying that the government “should actively intervene” in boosting the country’s level of trade.
“As evident from the slowdown in trade figures of Asia, and even negative performance of the Philippines, China, and India in the latest exports figures, the Philippine government should double its efforts in marketing the country’s export products to international consumers,” Socioeconomic Planning Secretary Ernesto M. Pernia, who is also NEDA’s director-general, was quoted in the agency’s statement as saying.
Economists said March’s trade results may be widely attributed to base effects with the country’s exports recovering last year.
Michael L. Ricafort, economist from Rizal Commercial Banking Corp. (RCBC), said the turnout in March “may not be necessarily bad,” saying that exports of electronic products, which accounted for around 58% of total exports, “still grew” by 6.8% to $3.2 billion.
Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (Union Bank) concurred: “Aside from coming from a higher base, this decline can be attributed to seasonal factors such as a temporary lull in demand,” he said.
For his part, Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK), said the decline in exports “can be traced partly to weaker domestic agricultural output and the slowdown in the eurozone and some Asian countries.”
“Meanwhile, the deceleration in imports might be attributed to the depreciation of the peso, which makes foreign goods more expensive in local currency terms,” he said.
“Although imports were also slower, the trend of rising demand for capital goods and raw materials are intact. Again, this may be attributed to seasonal factors or timing issues. I expect both exports and imports to pick up in the second quarter,” UnionBank’s Mr. Asuncion added.
On the other hand, Jose Mario I. Cuyegkeng, senior economist at ING Bank, said the results were not just base effects.
“In a growing world economy, exports would normally grow as well but export contraction intensified in March. We have not seen significant investments in the export sector other than pledges for economic zones,” he said in a report sent to reporters.
ING’s Mr. Cuyegkeng said import growth in March and in the first quarter was “disappointing.”
“An economy that is expected to grow at close to 7% in the next few years should see strong import growth,” he said. “We hope that the March import weakness is a one-off and a matter of absorption rather than the start of a trend of slowing economic activity.”
A DRAG TO GROWTH
As the trade deficit continued to widen, economists cautioned that it might pose a slight drag to the first-quarter gross domestic product (GDP) result.
“Wider trade deficits (due to higher imports) from a year ago may continue to be a drag on GDP growth,” RCBC’s Mr. Ricafort said. On the other hand, he noted a decline in trade deficit from the record levels in November and December last year, which “may diminish the drag.”
UnionBank’s Mr. Asuncion was of the same opinion: “However, the GDP results may be stronger than Q1 2017 due to higher investments from both public and private (sectors),” he said.
For LANDBANK’s Mr. Dumalagan, the robust consumption and investment spending levels during the quarter “could more than compensate” for the wider trade deficit, resulting in stronger first-quarter GDP growth.
Merchandise export sales historically account for as much as 40% of GDP.
OUTLOOK
Economists expressed hope that trade will pick up in the coming months amid improved economic prospects globally.
“For the rest of 2018, exports growth may pick up with the improvement in global economic growth especially in the US and China, the two biggest economies of the world,” RCBC’s Mr. Ricafort said, noting the weaker peso-dollar exchange rate that could make Philippine exports more price competitive from the international buyers’ point of view.
He said that targets for exports and imports growth for 2018 may still be within reach, “as manifested by the resilience in electronic exports and electronic imports growth rates since the start of 2018.”
However, RCBC’s Mr. Ricafort warned that key risk factor for both Philippine export and import growth prospects is the potential trade war between China and the US.
“I still expect exports to continue to grow, though at a slower pace compared to 2017, this year,” UnionBank’s Mr. Asuncion said.
“It is just Q1 and is still early to tell if the targets [for exports and imports] will be met or not. I still think that these targets are doable as long as global economies continue to be strong and external demand continue to grow.”
The United States was the Philippines’ top export market in March with 15.7% share worth $865.25 million, followed by Hong Kong’s 15.4% ($847.60 million) and Japan’s 14.1% ($774.63 million).
Meanwhile, China was the country’s biggest source of imported products with a 15.3% share amounting to $1.238 billion, followed by Japan’s 11% ($891.21 million) and Korea’s 10.2% ($830.88 million).