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Foreign trade decline continues in October

PHILIPPINE international trade performance shrank once again in October as imports declined for the 18th straight month and exports returned to negative territory.

Preliminary data by the Philippine Statistics Authority (PSA) showed merchandise exports in October contracted by 2.2% year on year to $6.202 billion, compared with a revised 2.9% growth in September and a flat 0.5% growth in October 2019. Prior to that, the export growth in September marked the first expansion in seven months.

Meanwhile, merchandise imports shrank for the 18th straight month in October by 19.5% to $7.979 billion. This was worse compared with the 15.3% and 7.6% contractions logged in September 2020 and October 2019, respectively.

Trade deficit for the month stood at $1.777 billion, lower than $1.783 billion in September 2020 and $3.573 billion in October 2019.

The country’s total external trade in goods — or the sum of export and import goods — was $14.181 billion in October, down 12.8% from $16.256 billion last year. This brought the total trade in the 10-month period to $122.151 billion, 20.2% lower than $153.159 billion a year ago.

For the 10 months to October, exports fell by 12.5% to $52.113 billion compared with the Development Budget Coordination Committee (DBCC) projection of a 16% fall for the year.

Meanwhile, imports in the January-October period amounted to $70.038 billion, lower by 25.2% from last year’s $93.605 billion. This exceeded the DBCC’s revised target of a 20% contraction for 2020.

Year to date, the trade balance amounted to a $17.924-billion deficit, narrower than the $34.052-billion trade gap in 2019’s comparable 10 months.

Manufactured goods, which made up 84.5% of total export sales in October, fell by two percent to $5.238 billion.

Exports of electronic products fell by a flat 0.3% to $3.584 billion in October, with semiconductors contributing $2.637 billion, down one percent. Electronic products made up almost 70% of manufactured goods exports and more than half of total exported goods.

Exports of agro-based products declined by 21.7% to $358.417 million, followed by petroleum products with an 89.5% year-on-year decline to $5.591 million.

Bucking the trend were exports of mineral and forest products, which rose by 48.4% and 22.9%, respectively, to $448.951 million and $36.829 million.

On the import side, purchases of raw materials and intermediate goods slipped by 9.6% to $3.223 billion in October from last year’s $3.565 billion. These goods account for 40% of the country’s import goods that month.

Capital goods, comprising 34.3% of the total, fell by 19.1% to $2.736 billion from $3.383 billion.

Imports of consumer goods decreased by 21.8% to $1.355 billion. Purchases of mineral fuels, lubricant and related materials were also down by 50% to $580.329 million.

In a statement, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua cited some positive takeaways from the trade data despite declines posted in October.

For instance, he noted businesses have been responding to the government’s approach for a targeted and gradual reopening of the economy as shown in the increase of capital goods imports in October when compared with the previous month. Moreover, exports to leading regional trading partners such as China and the Association of Southeast Asian Nations (ASEAN) have also grown by double digits.

China was the third-largest market for Philippine goods in October, accounting for 15.2% of total exports or $944.78 million. Exports to this market posted a 12.7% increase year on year. The other top two markets were the United States (16.3% share or $1.008 billion) and Japan (15.6% share or $965.28 million), albeit year-on-year sales to these countries were down by 6.6% and 1.4%, respectively.

On the other hand, China was the country’s top source for foreign goods with a 24.4% share or $1.950 billion, followed by Japan (11% share or $876.46 million) and the United States (eight percent share or $639.76 million).

Meanwhile, exports to ASEAN grew by 10.4% to $1.026 billion in October, but down 7.8% year to date at $8.305 billion.

In a note to reporters, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the “fast-fading domestic demand” along with negative investment sentiment led to imports falling by double digits for a ninth straight month, citing the sustained drop in capital goods.

“With inbound shipments of capital machinery fading fast, we forecast a slow and arduous recovery for the Philippine economy given the likely hit on potential output,” he said.

Mr. Mapa expects “anemic exports and free falling imports to carry into early 2021” as both external and domestic demand are expected to be lackluster at the start of the year, adding the deployment of the vaccine “will not be instantaneous.”

“The absence of vaccines and its projected slow rollout (3-5 years per official government estimates) will weigh on domestic economic activity and curtail any potential recovery in investment appetite. Thus, we expect import demand to recover but at a very shallow trajectory leading to a very gradual and slow recovery for the Philippines as it operates with diminished productive capacity,” he said.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion expects exports to be positive, while the decline in imports to soften in the remaining months of the year. He forecast the end-2020 decline in exports and imports to respectively reach 9.1% and 23% versus the year-to-date declines of 12.5% and 25.2%.

“It is very important that the rebound in the country’s external trade comes through for better GDP performance results in 2021. Both production for exports and imports are crucial for job creation and recovery in consumer incomes,” Mr. Asuncion said, even as he clarified that recovery in household consumption will still have the biggest impact on GDP performance.

In a separate e-mail, Asian Institute of Management Economist John Paolo R. Rivera said recovery in trade will depend on how fast the country’s productive capacity could recover from the damage caused by typhoons.

“[The trade sector] was on the way for a rebound, but were hampered by calamities,” he said.

In a phone interview, Philippine Exporters Confederation, Inc. (Philexport) President and Chief Executive Officer Sergio R. Ortiz-Luis, Jr. said the decline may be a question of cut-off dates and not less orders.

“The -2.2% (in exports) is still for adjustment… I think it will improve since the orders from China are coming in,” he said.

“We expect the dichotomy of strong exports and suppressed imports to continue in (first half of 2021), implying another (albeit smaller) current account surplus in 2021,” JPMorgan Research Analyst Milo Gunasinghe said in a note sent to reporters.

“Looking ahead, considering slow economic revival, we think a material widening of the trade deficit will likely be pushed further down the line to (second half of 2021). This means that the (current account) will likely remain in surplus, albeit a smaller one, next year as well,” he said.

Meanwhile, NEDA’s Mr. Chua said improving the communication infrastructure to entice investments in digital solutions and enacting logistics reforms such as rationalizing the freight system, establishing strategic warehousing, and cold chain systems to bring down costs will “play a key role” in the rebound of the country’s trade sector. — Michelle Anne P. Soliman with inputs from Beatrice M. Laforga

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