GDP: 6.1% 4Q and 6.2% 2018? Exports and Imports (Domestic Demand) Crashed in December! How was the Record USD 41.44 Billion Trade Deficit Financed?
6.1% 4Q and 6.2% 2018 GDP? Where?
At the end of January, I propounded that the National Government INFLATED the GDP data significantly.
[See The Zeitgeist of 2018 GDP: The Record Deficit Spending, Was the Export Data Been Inflated?, History has Rhymed January 27, 2019]
And yet the magnificent variance in growth numbers between the GDP and trade data! Such remarkable deviance emerged in Q2 and Q3! And I’d suspect that 4Q won’t be any different.
The PSA has yet to publish its December numbers.
To do away with the currency effect, using the monthly average USD to convert PSA’s trade data to peso, current export growth in peso exhibits minor difference with those in USD. Export growth in peso was up 3.21% in November and 10.99% in October.
For nominal peso exports to reach the GDP equivalent, December exports would require a growth rate spike of about 20%! Otherwise, the distance between the export GDP and trade numbers would signify an ocean!
International demand principally determines exports. The PSA’s October and November trade data dovetails with the world trade conditions based on CPM Netherlands Data. These numbers have pointed to a downturn in global trade.
In contrast, the 4Q export GDP numbers have departed from these.
Finally, December’s trade numbers….
1. TOTAL TRADE AMOUNTED TO $13.19 BILLION: The country’s total external trade in goods in December 2018 reached $13.19 billion, reflecting a decrement of 10.5 percent from the $14.74 billion recorded value during the same month of the previous year. Of the total external trade, $4.72 billion or 35.8 percent were exported goods and $8.47 billion or 64.2 percent were imported goods. Furthermore, the country’s balance of trade in goods (BoT-G) decreased to a $3.75 billion deficit in December 2018, from $3.97 billion deficit in December 2017.
2. EXPORTS AND IMPORTS DECLINE BY 12.3 PERCENT AND 9.4 PERCENT: The country’s total export sales in December 2018 was valued at $4.72 billion, indicating a decrement of 12.3 percent, from $5.38 billion in December 2017. This was due to the decreases in export sales of the four of the top 10 commodities, namely, machinery and transport equipment (-53.1%); coconut oil (-24.8%); electronic products (-15.2%); and other manufactured goods (-9.0%). (Table 2) On the other hand, total imported goods for the period of December 2018 slid by 9.4 percent, from a value of $9.36 billion in December 2017 to $8.47 billion total import in December 2018. The decrement was triggered by the negative growth in six of the top 10 major import commodities. These were: transport equipment (-33.3%); miscellane
Let me repeat: Imports (in USD) plummeted 9.4%, Exports crashed 12.3% for total merchandise trade to plunge 10.5%!!!!
Figure 1
As noted above, exports are a measure of international demand. The plunge in Philippine exports has been consistent with the sharp fall in global trade volume in December. Figure 1
Figure 2
And instead of exports, the December collapse of IMPORTS was THE stunner!
Imports function as a gauge of the much-touted domestic demand. The 9.4% contraction doesn’t seem to be an anomaly. It was preceded by the plunge in import growth to 6.84% in November from October’s 21.44% growth.
Even when adjusted for the average USD Php exchange rate, December’s numbers were ugly: -5.17% imports, -8.18% exports and -6.27% total trade.
Nevertheless, shrinking liquidity as measured by the money supply growth, as well as the flat to partially inverted yield curve, foretold this. Figure 2
As noted last weekend, the crash in December industrial production and languid consumer credit conditions reinforced the stunning cascade of the real economy.
More Signs of the Year of the PIG: The Incredible PHA! PhiSYx: BLOOM in, PCOR out, US Primary Dealers Panic Hoarding of UST Continues (4Q GDP and 2018 GDP Inflated: December Industrial Production Crashed, Consumers Went Slow on Spending) February 10, 2019
Figure 3
Adjusted to reflect apple-to-apple comparison, in the nominal or current peso, the largest discrepancy, since at least 2017, between export data growth of 2.36% and export GDP growth of 13.43% occurred in 4Q18! 4Q18 export GDP is 4.69x the trade data in current peso!
How can there be 4Q 6.1% GDP (much less the 6.2% annual GDP) when consumers (consumer credit) and the private industry (manufacturing, exports and imports) withheld spending?
Figure 4
Despite the crash in exports and imports, December registered a trade deficit of USD 3.75 billion, the third largest in at least six years! The 2018 annual deficit of USD 41.44 billion was the largest ever! And with BPOs and OFW remittances underperforming, where did the government get the resources to fund the gap?
Well, the answer is from debt. Foreign exchange borrowing by the National Government, from external and internal sources, swelled by 13.77% or by Php 304.5 billion to Php 2.806 trillion, a record! And that’s from the official sources. Banks may serve as indirect conduits for the NG.
So nation’s USD shorts will continue to mount, thereby exerting pressure on the peso. Here we are talking about the USD supply. The peso’s temporary recent strength has foremost been about liquidity strains in the financial system (partly about the FED and the PBOC). And such strains have begun to surface in economic statistics. The latest surge in GIRs has been mostly about the USD 1.5 bonds raised by the NG last January.
It would be interesting to see how signs of weak domestic demand will be manifested on tax (BIR and Boc) collections in December and for the year 2018. The Bureau of Treasury have procrastinated from publishing the data, why?
Bottom line: 6.1% GDP in 4Q and 2018’s GDP of 6.2% appears nothing more than statistical legerdemain.
As predicted back in May…
5) The last option would be for the NG and BSP to manipulate markets and statistics in the hope that the markets will conform and comply with their political targets.
[See Why Interest Rates Will Rise: 1Q Fiscal Deficit Blowout Financed by BSP’s Debt Monetization (QE) and Spiking Public Debt!May 6, 2018]
Economic statistics are supposed to provide an empirical groundwork to theory.
Figure 5
What the 4.4% January CPI says has been that consumers have so much money to spend for them to withhold spending directly on food (household). Instead, since consumers preferred to spend on higher prices, they stampeded to the restaurants! Figure 5.
As a result, Food CPI plunged to 5.59% in January from 6.69% in December. (Demand from restaurants were not able to help.) In the meantime, Restaurant CPI barely budged at 4.33% in January from 4.35% a month back.
But because Food CPI has a 38.34% weight as against Restaurant CPI which has only 12.6%, the headline CPI plunged to 4.4% from 5.1% in Decembers.
So not only are consumers price inelastic (price has no bearing on supply or demand), but consumers are unaffected by the race-to-build supply! Domestic consumers must be eating machines.
If partly true, restaurants would have hit an earnings jackpot in December because margins would have swelled!
And a final note, to justify the relentless bidding, many mainstream experts have been enchanting “LOW CPI EQUALS HIGH stocks”. Figure 5.
Some even use equity risk premium analysis to justify this. These experts seem to forget that the demand for hard asset bubbles (real estate, hotel-casino and malls) and the CPI are related to the demand for stocks. As such, the CPI has climbed and declined along with the PSYei 30 since 2013.
So will this time be different?
Or when CPI makes a volte-face, will they change their tunes?
