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Exports drop, imports slow in November; trade gap grows

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By Christine Joyce S. Castañeda
Senior Researcher

SOFTENING MERCHANDISE TRADE in November put an end to the country’s five straight months of export growth and pulled import growth down to single-digit level, the Philippine Statistics Authority (PSA) reported on Thursday.


Philippine trade year-on-year performance (November 2018)

Preliminary data from the PSA showed merchandise exports declining 0.3% to $5.569 billion in November, a reversal from growth rates of 5.5% in October and 14.2% in November 2017.

Meanwhile, import payments rose 6.8% year-on-year to $9.469 billion in November, easing from increases of 21.4% in October and 20.1% in November 2017.

These data brought the country’s trade deficit to $3.901 billion, wider than the $3.280-billion gap recorded a year ago.

The November turnout in exports capped five straight months of increases in 2018. Similarly, that month’s import growth figure ended seven consecutive months of double-digit increases in 2018.

To date, merchandise exports contracted by 0.9% to $62.767 billion against the two-percent target of the Development Budget Coordination Committee (DBCC) for full-year 2018.

On the other hand, import of goods grew 15.8% to $100.455 billion versus the DBCC’s nine percent projection for the year.

Cumulatively, the country’s trade balance posted a $37.687-billion deficit, much bigger than the $23.408-billion shortfall in 2017’s comparable eleven months.

Purchases of mineral fuels, lubricant and related materials (up 34.1% year on year to $1.207 billion); raw materials and intermediate goods (6.7% to $3.654 billion) and capital goods (4.9% to $3.016 billion) continued to grow in November.

On the other hand, imports of consumer goods declined 3.8% to $1.548 billion, weighing on total imports for the month.

Meanwhile, declines in outbound sales of mineral products (-34.4% to $244.902 million), petroleum products (-16.6% to $36.906 million) and forest products (-13.3% to $25.560 million) dragged the country’s overall export sector down despite growth in manufactured goods (one percent to $4.677 billion) and agro-based products (12.5% to $427.628 million).

In an e-mail, Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, pointed to the contraction in imports of consumer goods, which dropped 3.8% in November to $1.548 billion from $1.608 billion in the same month in 2017.

“Imports posted the slowest pace of growth since March mainly because of base effects and as inbound shipments for cars posted a hefty drop of 28.1% as [the fourth quarter of 2017] saw a car buying spree ahead of the TRAIN law implementation,” the economist said, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act that cut personal income tax rates but imposed additional taxes for cars among other goods when the law took effect a year ago.

Electronic products, which make up more than half of the country’s exports, was down 1.6% in November year-on-year albeit registering a 4.6% growth to $34.872 billion year to date in 2018. Semiconductors, which accounted for a chunk of electronic products, likewise dipped by 2.5% to $2.364 billion.

“All other export sectors managed to post a 1.6% expansion, but this was not able to offset the slump in its mainstay electronics sector,” ING’s Mr. Mapa said.

Socioeconomic Planning Secretary Ernesto M. Pernia was quoted in a statement by the National Economic and Development Authority (NEDA) as saying that “[a] widening current account balance due to rising capital goods imports and anemic exports growth is a cause for concern.”

“The widening gap emphasizes the need to reform legislation to allow foreign investments in firms catering to the domestic market, in addition to expanding their exporting activities,” said Mr. Pernia, who heads NEDA as director-general.

OUTLOOK
Amid this “capital-intensive growth,” wide trade deficits “will likely be the norm in the medium term,” said ING’s Mr. Mapa.

Asked about the effect of November trade results on last quarter’s economic performance, Mr. Mapa said in a separate e-mail to BusinessWorld: “Although this will have less of a drag on the overall net exports account, the details point to weaker capital formation numbers as passenger cars and capital machinery saw either contraction or slower growth.”

“We see this as an additional drag on [fourth-quarter] 2018 growth with our forecast looking to slip below six percent,” he added.

“Exports will likely struggle again as we continue to have all our bets on the electronics sector, which could face a tough year should global demand slip.”

For Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., exports could recover this year on the back of a lower base in 2018, adding that some Philippine exporters “could become alternative sources in the global supply chain brought about by the higher tariffs imposed on Chinese exports to the US and on US exports to China.”

However, Mr. Ricafort cautioned on “offsetting risk factors” like the prolonged US-China trade war and the partial US government shutdown that may lead to slower US and global economic growth.

Nevertheless, he noted that “there is still a good chance” of the country’s trade deficit to be narrower in the coming months after hitting record-high level in October last year.

The United States was the Philippines’ top export market in November with a 16% share at $893.20 million, followed by Japan’s 14.7% ($819.07 million) and Hong Kong’s 13.1% ($729.01 million).

On the other hand, China was the Philippines’ top source of imports with an 18.7% share ($1.766 billion), followed by Korea’s 10.9% ($1.03 billion) and Japan’s 9.5% ($903.28 million).