Trade ends 2020 with some lost ground yet to be recovered

MANILA, Philippines — Trade weakness persisted in December to cap 2020 in the negative territory, although last month's slump was milder as imports post a more moderated drop in what an economist said was a sign of resuming economic activity.

Merchandise trade sank 5.6% year-on-year in December to $13.66 billion, a slower decline compared to 9.9% contraction in November, the Philippine Statistics Authority reported Wednesday. Last month's reading brought the full-year trade value to $149.37 billion, sinking 18.2% on-year.

Still, a softer collapse in trade in December would be a good news for a government desperately trying to revive the economy from pandemic-induced recession. Month-on-month, total value of external trade went up 1.72% in December, figures showed.

But Nicholas Antonio Mapa, senior economist at ING Bank in Manila, is pessimistic as both global trade activity and domestic demand remains in bad shape. "Trade trends will likely continue going into 2021 with a fragile global recovery expected to limit particular gains for the export sector," Mapa said in a commentary.

"Downbeat economic prospects will likely translate to subdued import demand as both firms and households limit investment activity," he added.

Broken down, imports remained in the red for the 20th straight month in December, tanking 9.1% year-on-year to $7.92 billion on lower purchases of capital goods and fuel. But this was nevertheless a more subdued slump compared to November's -18.3%. 

Bucking the downtrend was consumer imports, which eked out a 1.5% annual growth last month in what Mapa said "could give an indication of some resumption of economic activity as select lockdown measures continue to be relaxed." Last year, the country's total import bill reached $85.61 billion, plummeting 23.3% on-year.

On the other hand, exports went down 0.2% on-year in December to $5.74 billion, reversing November's 4% growth as outbound shipments to China, a major trading partner, faltered.

Receipts from sale of electronic products, the country's top export commodity, surged 4.9% last month but this was offset by a 46.8% drop in outbound shipments of agri-based products, likely a result of fewer harvests in regions smashed by typhoons in November last year.

For all of 2020, figures showed the country's export earnings amounted to $63.77 billion, down 10.1% annually.

With imports exceeding exports, the trade deficit stood at $2.18 billion in December, 26.4% smaller year-on-year. That brought the full-year 2020 trade gap to $21.84 billion, narrower than $40.66 billion shortfall in 2019.

For Sanjay Mathur, economist at ANZ Research, the worst might be over in the trade front. "Improving growth will lead to faster growth in trade (and will be hugely exaggerated by base effects) but the trade balance is unlikely to fall much," Mathur said in an email.