External trade plummets in March

By Mark T. Amoguis
Assistant Research Head

THE COUNTRY’S international trade performance fell significantly in March as the restrictions imposed to arrest the spread of the coronavirus disease 2019 (COVID-19) outbreak in the middle of the month led to exports and imports shrinking to multi-year lows, the government reported on Wednesday.

Preliminary trade data from the Philippine Statistics Authority showed merchandise exports in March contracting by 24.9% to $4.53 billion compared to a 2.8% growth in February and a 0.1% uptick recorded in March 2019.

Likewise, merchandise imports fell 26.2% to $6.91 billion in March, deteriorating from an 11.6% decline in February and a 12% growth observed in the same month last year.

The March export fall broke three consecutive months of growth and was the lowest in nearly a decade, or since the 27% contraction logged in September 2011.

For merchandise imports, March marked its 11th straight month of contraction and the steepest since the 28.3% fall posted in August 2009.

Trade deficit in March was recorded at $2.38 billion, lower than the $3.34-billion gap in the same month last year.

The country’s total external trade in goods — the sum of export and import goods — was $11.44 billion in March, 25.7% less than the $15.40-billion haul in the same month last year. So far, total trade reached $38.98 billion, 10.4% less than $43.50 billion in January-March 2019.

For the three months to March, exports were down 5.2% to $15.72 billion, well below the 4% growth target for 2020 by the Development Budget Coordination Committee (DBCC), an interagency body that sets macroeconomic and fiscal assumptions of the government.

Meanwhile, the merchandise import bill dropped 13.6% to $23.26 billion on a cumulative basis against the DBCC’s eight-percent growth target for the year.

That brought the year-to-date trade balance to a $7.54-billion deficit, smaller than the $10.34-billion shortfall in 2019’s comparable three months.

Exports of manufactured goods, which account for nearly 80% of the total exports that month, slumped 27% year on year to $3.57 billion from $4.90 billion last year. Total agro-based products sales were also down 4.6% to $448.32 million in March.

Electronic products, which made up more than half of the total March export sales, decreased 24% to $2.44 billion. Semiconductors, which account for almost three-fourths of electronic products, went down 22.7% to $1.81 billion.

Exports of forest, mineral, and petroleum products likewise fell by 45.6%, 15.5%, and 16.7%, respectively to $17.56 million, $405.38 million, and $14.27 million.

On the import side, raw materials and intermediate goods, which contributed 38.4% to the goods imports bill in March, sank 25.6% to $2.65 billion year on year.

Capital and consumer goods also went down to 26.5% ($2.24 billion) and 21.9% ($1.19 billion) in March, respectively. Imports of mineral fuels, lubricant and related materials contracted by 32.2% to $783.09 million.

TRADE DECLINE ‘UNDERSTANDABLE’
In a statement, the National Economic and Development Authority (NEDA) said the COVID-19 pandemic and the resulting restrictions in production supply chains and global trade flow led to the country’s trade decline in March.

In a phone interview, Philippine Exporters Confederation, Inc. (Philexport) President and Chief Executive Officer Sergio R. Ortiz-Luis, Jr. said the slump in external trade was “clearly” attributed to the lockdown.

“Export-oriented companies were closed including our suppliers… Even [for] those who remained open, operations are only maintained at 30%. Obviously, [the decline] is understandable,” he said.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. (UnionBank), said the COVID-19 outbreak “paved the way” for the softening of global trade, particularly for those with huge trading partnerships with China, where the outbreak originated.

“It was a gradual decline of merchandise trade for January and February culminating to a sharp decline in mid-March as the larger part of the Philippine economy was virtually shut down, halting almost all economic activities initially,” he said in an e-mail.

The government’s trade growth targets will likely be missed this year, according to analysts.

“There’s no way [to achieve those targets]. We’re lucky to break even by the end of the year,” Philexport’s Mr. Ortiz-Luis said.

For UnionBank’s Mr. Asuncion: “It will definitely be difficult to meet these government-set growth targets.”

“Unless a vaccine is eventually discovered and successfully administered to the sickened population this year, trade going back to pre-COVID-19 levels or better remains to be a challenge,” he added.

For ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa: “We expect months of sustained contraction in the immediate term as lockdown stymies manufacturing and business activity. Subdued global demand should ensure trade in 2020 will be disappointing,” he said in a note to reporters.

In a statement, acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said trade in goods may recover next year, “but this will depend on how fast we can contain the spread of COVID-19 and mitigate its economic impact through government policies to support affected industries and workers.”

IMPACT TO GDP
The slump in external trade will “definitely be a big hole” in the country’s gross domestic product (GDP), Mr. Asuncion said.

“Although trade is not zero between January and February this year, merchandise trade has obviously declined dramatically due to COVID-19. Overall, 2020 Q1 GDP growth may decline a third of what was originally expected before the COVID-19 pandemic,” he said.

Philexport’s Mr. Ortiz-Luis said that in the past, an increase in exports by three to four percent tends to increase GDP by one percent.

“Under this exceptional situation, I don’t know if that’s true,” he said.

A BusinessWorld poll of 11 economists yielded a 2.9% median growth estimate for the first quarter, cooling from the 6.7% growth in the last three months of 2019 and 5.7% in the first quarter of 2019.

Should this materialize, this would be the slowest expansion in a decade or since the 1.8% pace recorded in the final three months of 2009.

The PSA will report the first-quarter GDP data today.