Facts are stubborn things, but statistics are pliable—Mark Twain
In this issue
Analyzing the Philippines’ February Merchandise Trade: Unveiling the Impact of Statistical Base Effects on a 'Growth' Rebound
I. Unveiling the Statistical Mirage Behind Merchandise Trade Growth
II. Export Boom? Semiconductor Up YoY but on a Downslide while Agro-Based and EDP Exports Rebound
III. Import Trends: Capital, Consumer, and Raw Materials Up YoY, Yet in Downtrend—Where Are the Investments?
IV. A Revival of the Domestic Manufacturing Sector?
V. Private Sector S&P PMI Survey Diverge from the PSA; Rising USD Peso Points to Risks of Stagflation
Analyzing the Philippines’ February Merchandise Trade: Unveiling the Impact of Statistical Base Effects on a 'Growth' Rebound
Government and media pounced on the positive YoY sign on Philippine Merchandise Trade, interpreting it as "growth." However, filtering noise from signal tell us otherwise.
I. Unveiling the Statistical Mirage Behind Merchandise Trade Growth
Businessworld, April 12: Preliminary data from the Philippine Statistics Authority (PSA) showed the country’s trade-in-goods balance — the difference between exports and imports — stood at a $3.65-billion deficit in February, slipping by 6% from the $3.88-billion gap in February last year. Month on month, the trade gap also narrowed from the revised $4.39 billion in January. The trade deficit in February was the smallest in five months or since the $3.55-billion deficit in September last year. Outbound sale of goods expanded for the second straight month by 15.7% annually to $5.91 billion in February. This was faster than the revised 9.1% growth in January and a turnaround from the 18.3% decline in February last year. This was the quickest exports growth in 16 months or since the 20.6% surge in October 2022. Meanwhile, imports rose by 6.3% to $9.55 billion in February, ending two months of decline. This was a turnaround from the revised 6.1% contraction in January and the 11.8% decline in February 2023. Imports growth was also the fastest in 16 months or since 7.7% in October 2022. (italics mine)
YoY February exports grew by 15.7%, while imports increased by 6.34%, and total external trade expanded by 9.74%. As a result, the trade deficit improved by 6%.
Great news, right?
That's if you discount the overall trend.
In reality, February's boost was a mirage—a product of the statistical "low" base effect.
Figure 1
From a noise versus signal standpoint, February's USD performance only reinforced the downside drift of the nation's trend in external trade. (Figure 1, topmost graph)
It is no coincidence that the fall in external trade deficit has resonated with the easing of the fiscal deficit manifesting the "twin deficits." (Figure 1, middle window)
The easing of public spending has reduced the "crowding effect," freeing up more resources for the market economy's use. (Figure 1, lowest chart)
Still, despite the imbalances from the structural shift in bank lending operations, the declining import trend demonstrates mounting strains on consumers from inflation.
However, both deficits translate to an economy spending more than it produces, thereby requiring borrowing to fund the savings-investment gap.
II. Export Boom? Semiconductor Up YoY but on a Downslide while Agro-Based and EDP Exports Rebound
Export boom?
Figure 2
Though semiconductor exports soared by 31.9% in February, export volume in USD has been down 2.14% MoM. It has been trending down since September 2023/October 2022. (Figure 2, topmost image)
The microchip % share of exports accounted for 44.8% in February 2024, slightly lower than 45.5% in January and substantially higher than 39.3% from the same month a year ago.
What other sectors grew in volume and in percentage?
Agro-based exports jumped 24.1% YoY, accounting for 7.2% of the total share. (Figure 2, middle diagram)
Electronic Data Processing exports also vaulted by 23.1% YoY, with a 7.5% share of the total. (Figure 2, lowest graph)
Electronic products (which include the semiconductor and EDP sectors) soared by 27%, accounting for 58% share of the total.
The thing is, only a handful of sectors benefited from February's export growth.
III. Import Trends: Capital, Consumer, and Raw Materials Up YoY, Yet in Downtrend—Where Are the Investments?
How about imports?
Last February, capital goods imports fell by only 3.4% YoY, while consumer goods imports grew by 9.2%.
But both sectors suffered a plunge in USD volume of 13.6% and 16.3% MoM, and they have shown signs of further weakening (Figure 3, topmost image)
So based on capital goods imports, the avalanche of news headlines about the proposed massive investment flows from a peripatetic leadership selling politically related investments to the US and their allies have yet to happen.
Still, the government reported that Foreign Direct Investment (FDI) flows almost "doubled" in January 2024, mainly from a surge of debt flows. Debt flows accounted for 90% of the FDI. Investments, eh?
Curiously, despite the wonderful headlines predicated on YoY, the FDI trend in million USD remains southbound. (Figure 3, middle visual)
And this bifurcation applies to raw materials imports, which expanded by 11.8%, despite the downtrend since 3Q 2022. Raw material imports serve as a pulse on the manufacturing sector. (Figure 3, lowest chart)
IV. A Revival of the Domestic Manufacturing Sector?
Yet, authorities tell us that growth in the manufacturing sector has been picking up.
Figure 4
First, the sector's bank credit growth more than doubled from 2% in January to 5.9% in February. The sector's bank credit growth has dovetailed the Producers Price Index (PPI) or "measure of change in the prices of products or commodities produced by domestic manufacturers and sold at farm gate prices to wholesale/other consumers in the domestic market." (PSA, Openstat)
Will the PPI follow the rebound in bank credit?
Second, manufacturing volume and value were up 8.9% and 7.5% in February 2024, even as net sales in volume and value contracted by 0.5% and 1.7%.
Generally, producers have been ramping up in production despite slower sales—implying substantial inventory accumulation.
V. Private Sector S&P PMI Survey Diverge from the PSA; Rising USD Peso Points to Risks of Stagflation
Figure 5
But, the S&P PMI survey for March diverged from the PSA:
The latest PMI® data by S&P Global indicated only a modest improvement in the health of the Filipino manufacturing sector during March. Though the pace of expansion was largely sustained from the previous survey period, growth in new orders remained historically subdued. Furthermore, production lapsed back into contraction for the first time since July 2022 amid material shortages. Companies raised their employment and buying activity at stronger rates and renewed their efforts to replenish inventories. That said, the degree of confidence in the outlook for output over the coming year dropped to a near four-year low. In terms of prices, the rate of input cost inflation softened to the weakest since October 2020. Additionally, charges levied for Filipino manufactured goods fell for the first time in nearly four years. (SPI Global, April 2024)
Both indicators shared the replenishment of inventories and the account of disinflation via the PPI, but instead of output growth, the SPI indicated a production lapse.
The Philippine PMI appears to have been plagued by a "rounding top." (Figure 5, topmost image)
In summary, government data points to an upturn in the manufacturing sector in the GDP, which diverges from the SPI’s outlook.
Dialing back to imports, only one major category registered increases in both YoY and MoM volume: fuel imports, which were up by 8.3% YoY and 28.4% MoM, driven by rising oil prices. (Figure 5, middle chart)
As noted above, due to the "low" base of 2023, government data recorded growth—a chimera.
However, the general trend for merchandise trade exhibits ongoing weakness in capital goods, consumers, and manufacturing, along with rising risks of stagflation.
The rising US dollar-Philippine peso $USDPHP suggests that the easing of this deficit (and the twin deficits) must be ephemeral. (Figure 5, lowest diagram)
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References:
S&P Global Philippines Manufacturing PMI Filipino manufacturing output slides into contraction for the first time since July 2022, April 1, 2024, spglobal.com
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