AT the end of last week, the National Economic and Development Authority (NEDA) and the Philippine Statistical Authority (PSA) released the monthly import statistics for August, which elicited some puzzling reactions from government officials and local analysts.
Total imports for the month of August were $5.5 billion, 1.3 percent less than the $5.6 billion of imports in August 2013, and it was this fact that seemed to make NEDA Director General Arsenio Balisacan a bit uncomfortable.
“Domestically, the recent slowdown in imports may reflect market sentiment of sluggish demand due to seasonal factors. But we remain vigilant should this sluggish growth in imports turn out to be a signal of a more pessimistic condition of the global economy, which may spill over locally,” Balisacan said.
Nicholas Antonio Mapa, an economist with the Bank of the Philippine Islands, had this to say about the August import results: “The recent truck ban in Manila had fomented port congestion and led to the artificial trade surpluses we’ve enjoyed for the previous two months. Given that most of our imports come in through Manila but leave through other ports in the country, we’ve seen months of strong exports but simultaneously weak imports, and thus the trade surpluses.”
Mapa went on to explain that, “This [an ‘artificial’ trade surplus persisting for a period of time]would mean that we have continuously been drawing down on inventory, especially in our mainstay sector of our export sector: electronics. Given that we’ve seen months of outflow and no inflow, we would expect that these companies, after drawing down inventory of raw materials, would replenish and import more material.”
Mapa also explained that the apparent decline in petroleum imports might be misleading due to the drop in world oil prices, which were $10 per barrel cheaper this August than in August 2013. “This could mean that we imported the same amount of crude oil but it was valued as ‘lower’ because of its US dollar price,” he said.
I’ll come back to why all those are somewhat discomfiting observations in a moment, but first it may be helpful to clarify the significance of imports to the overall economy. In the expenditure approach to calculating GDP—the method that produces the figures we hear every quarter—gross imports are subtracted from gross exports, so obviously import growth without any other context is not by itself necessarily a positive economic indicator. What import growth does indicate is demand; direct demand by the consumer market for imported goods, and demand from the manufacturing sector for raw materials and intermediate goods that will be turned into consumer goods.
That being the case, the gross import total and its growth rate really do not tell us much about the health of the economy; we have to examine the components of the overall import amount to assess whether or not the two different types of demand are actually healthy. Examining the various points made by NEDA’s Balisacan and BPI’s Mapa with respect to the performance of the various import inputs, however, only leads to more confusion in this case.
Balisacan, attributed “sluggish demand” to “seasonal factors,” but there is no real evidence for either one of those. To begin with, if there was a seasonal effect resulting in lower imports, then we would expect to see a pattern of that from year to year, and that simply is not the case. For the past three years, the rough relationship of the months of June, July, and August has been nearly consistent, with each successive month recording slightly more imports than the month before. The one exception was in 2012, when August imports broke the pattern by being significantly lower than in July 2012.
Consumer goods imports, the most obvious indicator of primary demand, increased 13.8 percent year-on-year in August, or by about $93 million. Some individual commodity sub-categories did decline—specifically vehicles, appliances, dairy products, and fish—but even discounting a 247 percent jump in rice imports, every other category of durable and non-durable goods had healthy increases; the lowest among them was a 21.8 percent increase in fruit and vegetable imports, the highest a 68 percent jump beverages and ‘tobacco manufactures.’
On the other side of the ledger, raw materials and intermediate goods did not give a clear-cut indication of cooling demand, either. While the entire category accounted for a 9.5 percent lower import value than it did in August 2013, the figures for individual commodities were decidedly mixed: Unprocessed raw materials retracted by 59.8 percent overall, with big drops in imports of synthetic fibers and metalliferous ores, but on the other hand, there were large increases in imports of wheat, corn, pulp and waste paper and cotton. Semi-processed raw materials were just 0.6 percent lower, with sharp decreases in things like materials for electrical manufactures, chemical compounds, medicine and pharmaceutical chemicals, and embroideries almost being offset by hefty gains for every other commodity.
If there is sluggishness in demand, perhaps the best evidence for it is in the downturn in crude oil imports, which BPI’s Mapa highlighted. On a year-to-year basis, oil imports declined by 22.7 percent from $798.8 million to $617.2 million. The average price per barrel in August 2013 was $105; in August 2014 it was $95, a difference of a bit less than 10.5 percent. That means that oil imports actually did decrease in volume, by about 12.3 percent.
Since virtually all of the crude oil imported by the Philippines is turned into fuel this might indicate a slowing of economic activity, but the results of one month do not give us enough information to identify any sort of trend.
All things considered, there does not seem to be any real cause for alarm, or the somewhat less-than-confident assessments offered by the experts, except for one thing both Balisacan and Mapa mentioned: port congestion, which as I pointed out in Tuesday’s column, is actually a much larger issue than how it has been portrayed here. It may very well be “the new normal,” at least for the foreseeable future, and thus the source of the “signal of a more pessimistic condition of the global economy” that Balisacan urged the country to be mindful about.
If, as the two experts noted, the decline in imports really does indicate a drawdown of manufacturer and distributor inventories, it could have a significant negative impact on the economy as a whole; inventories would not be replaced at a rate sufficient to meet demand, and as a result demand would eventually decrease and GDP growth would slow. All things being equal, the cycle would swing back to positive at that point, but if they remain unequal—that is, if the inventories still cannot be replaced due to global-scale logistics bottlenecks—the economic stagnation could last for a considerable length of time. As Dr. Balisacan suggests, we should remain vigilant.