Foreign trade reverses fragile rebound in October

December 10, 2020

MANILA, Philippines — The fourth quarter started on a weaker note for foreign trade that snapped a fragile recovery from lockdowns in October.

Merchandise trade sank 12.8% year-on-year in October to $14.18 billion, ending 5 straight months of easing slump and registering the first month-on-month dip since the height of lockdowns in April, preliminary government data showed.

Broken down, exports collapsed 2.2% on-year to $6.2 billion in October, while imports fell 19.5% annually to $7.98 billion. With imports exceeding exports, the trade deficit stood at $1.78 billion, 50.3% narrower year-on-year.

Fresh slowdown in trade activity highlights two daunting challenges for the Duterte administration. On one hand, exporters are still reeling from some restrictions that stayed when government decided it can no longer afford shutting down the archipelago to put coronavirus under control. On the other, sluggish imports are simply reflecting weak local consumption from consumers too afraid to go out.

Sergio Ortiz-Luis, president of the Philippine Exporters Confederation Inc., an industry group, said cargo logistics remained hampered. “It’s possible that the problem is not with orders but with shipments and logistics,” Ortiz-Luis said in a phone interview. 

Acting Socioeconomic Planning Secretary Karl Kendrick Chua agreed with Ortiz-Luis and offered some permanent fix such as better freight systems and construction of bigger warehouses, including cold chain systems to bring down costs, all of which he said can be attained by relaxing easing foreign restrictions under the Public Service Act. The bill that would do so is a government priority.

“As traditional means of connecting buyers to suppliers are limited at the moment, the government and the private sector need to work together to harness digital platforms and alternative means to source from, and supply to, the country,” he said in a statement.

Among commodity groups, banana exports slumped a huge 42.5% year-on-year, ignition wiring and other wiring sets down 9.5%, while bigger machinery and transport equipment sank 6.3%, data showed.

Electronic products, which accounted for the bulk of exports, likewise inched down a slower 0.3%.

With no quick turnaround insight, economic managers recently cut forecasts for goods exports and imports to a contraction of 16% and 20%, respectively this year. To date, exports are performing better than that, declining 12.5% on-year to $52.11 billion in the first 10 months.

“I’m confident that the slump is only temporary and exports will return to growth mode, especially next year,” Ortiz-Luis said.

Imports down for 18 straight months

Imports, meanwhile, are faring worse than expected. From January to October, outbound shipments plummeted 25.2% year-on-year to $70.03 billion. Monthly, imports have been on a freefall since May 2019, and Nicholas Antonio Mapa, senior economist at ING Bank in Manila, was not expecting any correction soon.

“The import numbers show telltale signs of a stagnating economy with imports of consumer goods and capital goods in deep contractions,” he said in an email.

In October alone, capital imports, a leading indicator of the economy’s productive capacity, fell 19.1% year-on-year. Imports of consumer goods plummeted a bigger 21.8% on-year, at a time they were supposed to go up ahead of typically pent-up local demand for the holidays.

“This tells us that domestic demand remains subdued and investment appetite continues to be lackluster,” Mapa said.

“We expect trade levels to return to pre pandemic levels in around 1.5 years time as we do not predict a quick turnaround in economic fortunes,” he said.

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