PHILIPPINE exports reversed previous gains and dropped 4.10 percent year-on-year in April, hitting a two-year low as weak global demand weighed on eight major commodities, preliminary government figures show.
The fall in April erased the 2.06-percent increase recorded in March and a 1.26-percent expansion in April 2014, according to figures released Wednesday by the Philippine Statistics Authority (PSA).
April marks the biggest drop in exports since April 2013, when outbound shipments slumped 11.1 percent.
Figures from the PSA show April exports eased to $4.376 billion from $4.563 billion a year earlier on the back of declines posted by other mineral products; other manufactures; woodcraft and furniture; metal components; chemicals; ignition wiring set and other wiring sets used in vehicles, aircraft and ships; articles of apparel and clothing accessories; and machinery and transport equipment.
Exports for the first four months of 2015 totaled $18.623 billion, down 1.2 percent from $18.840 billion in the same period in 2014.
Fragile global conditions
In an official statement, Socioeconomic Planning Secretary Arsenio Balisacan explained that the weak export performance is partly reflective of fragile global economic conditions, with most trade-oriented economies in East and Southeast Asia also registering export declines during the period. Vietnam remained in growth territory.
“Weaker demand conditions in some of our major trading partners, particularly China, were seen,” Balisacan, who is also the NEDA director-general, added.
He pointed to the fall in international crude oil prices as having slashed the country’s export of petroleum products to Singapore, Malaysia, Thailand and Cambodia.
The country’s outbound shipment of petroleum products reached only $2.7 million in April, a 94.8 percent plunge from $52.0 million recorded a year earlier.
Export of mineral products dropped 18.2 percent in April to $260.3 million from $318.0 million a year ago on lower earnings from copper concentrates and iron ore agglomerates, he added.
Total export revenue from agro-based products tumbled 33.1 percent to $231.0 million from $345.0 million as sharp contractions were recorded in fruits and vegetables.
“The production of agro-based commodities will continue to feel the impact of a prolonged drought in tandem with the occurrence of stronger and erratic typhoons. This will ultimately affect production,” Balisacan said.
He stressed the need for government to fast-track and strengthen initiatives such as infrastructure support, hybrid seeds and advanced weather sensing facilities to lessen the impact of extreme weather conditions on agriculture.
“These initiatives, if undertaken, will help stabilize the supply of exported agro-based commodities and provide steady income for workers in agriculture,” he said.
The NEDA acknowledged that the country’s export sector remains vulnerable to any further waning of demand from major trading partners.
Balisacan said the softening of economic activity in China and the still fragile economic growth of Japan remain a downside risk for Philippine exports.
“To counter weak demand from our major markets, the government should maximize our existing trade agreements, especially with emerging economies benefiting from the low oil price environment. Also, this shows the importance of restoring traction in government spending,” he said.
Japan remained the Philippines’ top export market for the month, with a 17.9 percent share of the total, or $784.90 million. The value of exports to Japan, however, reflects a 16.1 percent drop from the year-ago level.
The United States came in second with a 16 percent share, or $700.21 million. It was followed by China, Hong Kong and Singapore.
‘Exports unlikely to boost Q2 GDP’
Given a sluggish external environment, as affirmed by the latest exports data, growth in gross domestic product (GDP) in the sector is seen unlikely to get a lift from exports.
An economist with UK bank HSBC, Trihn Nguyen, said that although the Philippines is not an export-driven economy, the decline in shipments is, nonetheless, worrying.
In the first quarter of 2015, the drastic slowdown in the export of real goods and services dragged the GDP growth trajectory downward, she said.
Nguyen explained that while imports also decelerated to 4.6 percent year-on-year from 9.9 percent in the fourth quarter of 2014, the sharp downturn in exports cut growth in GDP by almost 2 percentage points from 5.2 percent.
“April’s disappointing exports, coupled with expectations that external demand conditions will remain tepid, suggest that net exports are unlikely to contribute to growth in the second quarter,” she said.
HSBC also believes that Philippine exports are weighed down not only by fundamental weaknesses such as worsening infrastructure and restrictive labor laws but also the downturn in the commodity cycle and an appreciating trade-weighted effective exchange rate.
“We believe Philippine exports are weakened by eroding costs and structural competitiveness. On a trade-weighted basis, the currency has appreciated. The effect is even stronger versus developed economy trade partners,” Nguyen said.
The economist also pointed out that the effects of exchange rate valuations are not the only issue. Other factors such as uncompetitive hard infrastructure, labor costs, foreign direct investment restrictions and the ease of doing business have been weighing down the sector’s performance.