External trade weakness persists in July amid global slowdown

By Lourdes O. Pilar, Researcher

PHILIPPINE international trade further contracted in July as trade activity remains subdued here and the rest of the world, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary data from the PSA showed merchandise exports in July declined by 9.6% to $5.654 billion compared with a revised 12.5% fall in June and 4.8% growth recorded in July 2019.

The July result marked the fifth straight month of decline for exports, as well as the slowest decline this year after the double-digit decline that started in March.

Philippine trade year-on-year performance (July 2020)

Meanwhile, merchandise imports contracted for the 15th consecutive month in July by 24.4% to $7.481 billion, worsening from the year-on-year declines of 23.1% in June and 0.9% in July last year.

The trade deficit in July stood at $1.827 billion, lower than the $3.641-billion gap in the same month last year. This was, however, the biggest in four months, or since March’s shortfall of $2.368 billion.

The country’s total external trade in goods — the sum of export and import goods — was $13.134 billion in July, 18.6% down year on year. This brought the total trade in the seven-month period to $80.771 billion, nearly a fourth lower than the $105.725 billion a year ago.

For the seven months to July, exports fell by 16.4% to $34.135 billion, worse than the Development Budget Coordination Committee’s (DBCC) revised projection of a 16% fall for the year.

Meanwhile, the import bill declined by 28.1% to $46.636 billion, faster than the DBCC’s revised target of an 18% contraction for 2020.

Year to date, the trade balance amounted to a $12.501-billion deficit, narrower than the $24.066-billion trade gap in 2019’s comparable seven months.

Manufactured goods, which made up 83.8% of total sales in July, slid by 8.8% to $4.738 billion from $5.194 billion previously.

Electronics, which made up about 70% of manufactured goods and more than half of the total exported goods, declined by 2.6% to $3.351 billion in July, with semiconductors contributing $2.501 billion, down 1.8%.

Outbound shipments of agro-based products likewise shrank by 21.7% to $342.578 million, followed by forest products which fell by 6% to $29.240 million, and petroleum products which dropped by 92.2% to $258,710.

Bucking the trend were exports of mineral products, which rose 0.1% to $437.853 million.

On the import side, purchases of raw materials and intermediate goods, which made up 41% of the import total, declined by 14.8% to $3.066 billion in July.

Capital goods, comprising 31.5% of the total, fell by 29.8% to $2.358 billion.

Imports of consumer goods fell by 27.3% to $1.227 billion and mineral fuels, lubricant and related materials dropped by 36.2% to $746.962 million.

“The continuous contraction of exports and imports reflect the lethargy of both domestic and world economies due to the seemingly increasing rampage of the COVID-19 (coronavirus disease 2019) pandemic,” said University of Asia and the Pacific (UA&P) Senior Economist Cid L. Terosa in an e-mail.

In a statement, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the severe contraction in major import commodities reflects “fading domestic demand with the economy in recession.”

The economy plunged into a recession as gross domestic product (GDP) fell by a record 16.5% in the second quarter. For the first half, the country’s GDP decline at 8.6%.

The country’s external trade, while a net negative contributor to the calculation of GDP growth, is still considered an essential growth component. This as exports and purchases of investment goods abroad such as capital goods and raw and intermediate materials are seen to contribute to growth in capital formation and government spending through its “Build, Build, Build” infrastructure program.

Mr. Mapa said the “sustained double-digit contraction” in capital goods and raw materials “point to fading potential output,” increasing the possibility that Philippine economic growth could slow in the next few years.

“The drop in trade performance will constrain economic growth by curtailing domestic production and income-earning activities,” UA&P’s Mr. Terosa said. Many exporters will find smaller and limited world markets while import-dependent industries will encounter some supply bottlenecks.”

“As long as domestic and world markets remain listless, trade performance will continue to be sluggish until the first quarter of next year. Trade activities may start to pick up after that,” he added.

In a phone interview, Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. said that while it would be difficult to reverse the decline in exports this year, the recent “established trend” of slower year-on-year declines would hopefully make it possible for export performance to even out by the end of the year.

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