Trade remains negative in August as coronavirus shocks linger

MANILA, Philippines — Lackluster trade activity continued to hound the Philippines in August on the back of persistent pullback in both imports and exports, a symptom of an economy still struggling to recover from coronavirus shock.

Total merchandise trade fell 21% year-on-year to $12.33 billion in August, bigger than 18.1% annual slump posted in the preceding month, the Philippine Statistics Authority (PSA) reported on Friday. 

Broken down, exports amounted to $5.13 billion while imports hit $7.20 billion. Despite the easing of movement restrictions since June, data shows imports remain in the negative territory. Year-on-year, inbound shipments shrank 22.6% in August, albeit at a slower pace compared to 23.8% annual drop posted in July.

On the other hand, exports also stayed in the red but its decline slowed to 18.6% on-year.  "Both inbound and outbound shipments in August contracted at double digit rates... on poor external demand and a spluttering domestic economy," Nicholas Mapa, senior economist at ING Bank in Manila, wrote in an e-mailed commentary.

Before the pandemic struck, surging imports were a welcome development for a government that has embarked in a massive infrastructure push, which requires hefty shipments of raw materials from overseas to construct roads and bridges. But in August, imports of capital equipment sagged 27.6% on-year while those of intermediate goods fell 8.9% annually.

On the flip side, purchases of medical supplies continued their uptrend in August as the pandemic drags on, especially of surgical facemasks (1,565.9%), protective clothing (1,388.1%) and face shield (236.0%).

For ING's Mapa, the chronic imports weakness foreshadows a sluggish economic recovery for the Philippines. "Prospects for economic growth continue to dim with imports revealing yet another month of double digit contractions for both consumer goods and capital formation," he said.

"This development will likely translate into a similar impact on both household consumption and capital formation in the (gross domestic product) accounts with ING expecting negative growth for both 3Q and 4Q 2020," he added.

On the exports side, earnings from outbound shipments of electronic products, the country's top export product, amounted to $2.93 billion, down 20.1% year-on-year. Already, the Semiconductor and Electronics Industries in the Philippines Inc., an industry group, is penciling in 20% decrease in exports this year.

With value of purchases abroad still outpacing growth in export sales, the country posted a trade deficit of $2.08 billion in August, larger than $1.86 billion gap recorded in July. That widened the cumulative shortfall to $14.61 billion, figures showed.

"Trends in Philippine trade data continue to be supportive of our view for peso strength in the near term," Mapa said.

" In short, the sharp narrowing of the trade deficit will likely keep the peso supported for the balance of the year, but import trends point to worrying signs of poor growth prospects for the months to come," he added.