According to the latest external trade data released by the Central Bank, country’s trade deficit had narrowed significantly in June 2019 in comparison to the corresponding month of 2018 mainly due to the reduction in imports of motor vehicles and fuel.

The trade deficit narrowed to US $316 million in June from US $795 million a year ago, as imports fell from 23.1%  (year-on-year) for the eighth consecutive month to US $1.4 billion while export earnings rose by 5.8%  (year-on-year).

On a cumulative basis, the deficit in the trade account contracted by US dollars 2,112 million to US dollars 3,597 million during the first six months of 2019 in comparison to the corresponding period of 2018.

Meanwhile, the terms of trade, which represents the relative price of imports in terms of exports, improved by 3.6% (year-on-year) to 114.0 index points in June 2019 as export prices, on average, reduced at a slower pace than the decline in import prices.

However, on a cumulative basis, the terms of trade deteriorated by 1.5% during the first six months of 2019 in comparison to the corresponding period of 2018.

Exports

Earnings from merchandise exports increased for the 28th consecutive month in June 2019 and recorded an increase of 5.8% (year-on-year) to US dollars 1,084 million, mainly supported by an increase in industrial exports.

Earnings from industrial exports increased in June 2019 mainly due to the improved performance in textiles and garments, rubber products and transport equipment. Export earnings from textiles and garments increased by 11.4% in June 2019 benefiting from higher demand for garment exports from both the traditional and non-traditional markets.

Export earnings from rubber products increased with better performance in tyres and surgical and other gloves while export earnings from transport equipment increased notably reflecting the supply of a naval craft to Japan.

However, export earnings from petroleum products and machinery and mechanical appliances declined significantly in June 2019 in comparison to June 2018.

Earnings from agricultural exports decreased, on a year-on-year basis, in June 2019 mainly due to the reduction in earnings from tea, rubber, spices and minor agricultural products.

Export earnings from tea declined in June 2019 (year-on-year) mainly due to lower prices. However, export earnings from coconut, seafood and vegetables increased in June 2019.

Export earnings from mineral exports also declined in June 2019 in comparison to June 2018.

The export volume index in June 2019 increased by 6.4 % (year-on-year)while the export unit value index declined by 0.6%, indicating that the growth in exports was entirely driven by increased volumes when compared to June 2018.

Import

Meanwhile, Expenditure on merchandise imports contracted for the eighth consecutive month, recording a decline of 23.1%, on a year-on-year basis, to US dollars 1,400 million.

All three major categories of imports; consumer goods, investment goods and intermediate goods contributed to the decline in June 2019.

Expenditure on consumer goods imports reduced by 39.4% in June 2019, due to lower imports of all sub categories of non-food consumer goods, particularly, personal motor vehicles.

The persistent decline in import expenditure on personal motor vehicles mainly reflects the impact of the upward revision of excise duties introduced in March 2019 on the importation of hybrid and electric motor vehicles and motor cars with less than 1000cc engine capacity. Expenditure on food and beverages imports also decreased reflecting lower outlays in almost all sub categories except seafood, cereals and milling industry products.

Imports of intermediate goods decreased by 11.1% in June 2019 mainly due to lower fuel imports.

Both crude oil and refined petroleum products declined due to the combined impact of low import volumes and prices.

Imports of textiles and textile articles, fertiliser, chemical products, food preparations and paper and paper boards also contributed to the reduction in imports.

However, imports of base metals increased in June 2019.  Import expenditure on investment goods decreased in June 2019, due to lower imports in all sub categories.

Building material imports reduced mainly due to the decline in iron and steel and cement imports while transport equipment reduced mainly due to the decline in certain categories of vehicles such as commercial cabs, auto trishaws etc.

The import volume index decreased by 19.8% and the unit value index decreased by 4.0% indicating that the decline in import expenditure was driven by the reduction in both volumes and prices, in comparison to June 2018.