Record imports fall knocks recovery hopes

MANILA, Philippines—(UPDATE) Imports in March fell from a year earlier at a record pace, hit by weak demand for electronics parts largely used in export products, deflating optimism that global demand may be picking up.

Electronics parts are the Philippines’ biggest import and they are mostly turned into export products sold mainly in China, United States, and Japan, providing a barometer on the health of demand.

Overall imports dropped 36.2 percent from a year earlier, the fifth month in a row that imports have dropped more than 30 percent, as electronics parts demand dropped 40.7 percent.

The fall in overall imports was the biggest since records began in 1991, the National Statistics Office said.

Months of falling imports had suggested that Philippine companies were drawing down inventories to cope with the global financial crisis rather than importing materials and parts.

But the absence of any let up in the fall raised doubts that signs of a pick up in exports marked a return, albeit from low levels, of demand.

“After the heavy inventory starving — with manufacturers pulling back on more imports in previous months — demand for components still looks weak. This suggests that signs of bottoming must be taken in perspective of prolonged periods of demand slump to come,” said Vishnu Varathan, an economist at Forecast in Singapore.

A 30.9-percent fall in March exports from a year earlier, the smallest drop since November, had raised hopes that global demand may be improving. Other Asian exporters have also reported a let up in the exports slump and even some growth between months, suggesting that the worst may be over.

Indeed, the Semiconductor and Electronics Industries, an industry group in the Philippines, had declared the worst was over following the March export numbers.

“There’s enough data points that we believe that we’ve seen the worst in the first quarter,” Arthur Young, chairman of the group told Reuters earlier in May. “We definitely believe the bottom has happened.”

The Philippines supplies about 10 percent of the world’s semiconductor manufacturing services, including the assembly of mobile phone chips and micro processors.

Radhika Rao, an economist at IDEAGlobal in Singapore, said the latest import figures would undermine some of the optimism over exports.

“A sustained fall in imports punctures optimism on a pick-up in export orders as domestic manufacturers appear to be cutting back on purchases,” she said. “We will need to watch for import numbers in the second quarter to give credence to the bullish remarks by industry groups.”

Weak external demand is weighing on the Philippines economy, although it is less reliant on exports than some of its neighbors.

First-quarter gross domestic product data is due to be published on Thursday. A Reuters poll showed a median forecast suggesting GDP fell 1.8 percent from the previous quarter but rose 2.5 percent from the same year-earlier period.

“The underlying strength as far as external demand is concern is still not returning and so any recovery or any performance we want to see as far as the Philippines economy is concerned is still going to be domestic demand-led,” Taimur Baig, a senior economist at Deutsche Bank in Singapore.

The central bank, widely expected to cut its overnight borrowing rates on Thursday to a fresh 17-low of 4.25 percent, has already cut rates four times in a row since the global crisis blew up to try to support the economy.–Rosemarie Francisco, Reuters