ON Tuesday, the Philippine Statistics Authority (PSA) released imports data for the month of August, which showed growth on a year-on-year basis slowed to 4.1 percent from a 23 percent expansion in July.
Growth is still growth even if it’s at a lower rate, so the government offered no explanation for the difference between July’s rapid pace and August’s rather sedate performance.
A couple of analysts, however (one from BPI who spoke to our reporter, and one I had a chance conversation with while waiting in line at Chow King), opined that the August slowdown was probably related to the continuing decline in oil prices, which also has affected the value of exports throughout the year.
Sorry guys, but that turns out not to be the case. Yes, oil prices are about half of what they were a year ago —51.78 percent lower, to be precise—but as the two charts show, the connection between oil prices and import values is tenuous at best, and for all practical purposes nonexistent. Both government and private analysts have also tabbed oil prices as the explanation for other seemingly negative indicators such as declining export and manufacturing values, and it is starting to come across as a bit lazy. As the upper chart (red line) indicates, oil prices are no longer steadily declining; they did for a considerable length of time up to the beginning of this year, but since then have simply been fluctuating within a lower range. In addition, even though prices have dropped, the absolute value of oil-related imports more than doubled from July to August, from $292 million to $635 million.
What that means in practical terms is that for some time, at least the past two quarters, oil prices have in all likelihood been “priced in” to economic indicators, are no longer an excuse for current conditions, and after a couple more months will not even be relevant for year-on-year comparisons. Saying “oil prices” in response to every question about changing indicators implies that changes are primarily externally driven; not only is that misleading, it discourages closer examination of economic conditions.
Imports matter not so much for their value, but their kind. Over a long period, both imports and exports will naturally grow at a rate approximating growth in the overall economy. For August, the on-year growth rate of 4.1 percent is lagging the GDP growth rate (5.6 percent as of the end of the second quarter), but that is probably not enough to be seriously concerned about, even though a “decline” makes for good news copy. Because it’s an easy plus-minus indicator for ordinary readers to understand, much is made of the trade balance—whether or not the country has a surplus or deficit—but that is highly conditional, and dependent on the nature of the economy. A trade deficit is not necessarily a bad thing, even though it suggests on the surface that the country is spending more than it is earning; a place like Singapore, for instance, which produces very little in the way of material goods, can have a massive trade deficit but still have a healthy economy overall.
What matters, rather, is exactly what is being imported—or not imported, as the case may be. On that basis, there may be some cause to worry about the implications of the latest data for the Philippine economy. In August, five of the 10 import categories declined: Mineral fuels, lubricants, and related materials; plastics in primary and non-primary forms; transport equipment; iron and steel; and cereals and cereal preparations. The goods that showed an increase included medicinal and pharmaceutical products; electronic products; miscellaneous manufactured articles; industrial machinery and equipment; and other food and live animals. The latter group of gainers is mostly consumables, while the losers are mostly raw materials.
That is a bit of a problem, because while it indicates that the consumption side of the economy is reasonably energetic, the production side—which ultimately produces a much greater value—is weak. How weak is shown by data on manufacturing volume and value; in August the net sales value (the most important indicator in terms of manufacturing data, because manufacturing things is essentially pointless if they are not sold) dropped by 7.2 percent from a year earlier, after a 6.7 percent decrease in the previous month.