Trade deficit widens in September as export earnings decline

November, 18, 2019

According to the latest external trade data released by the Central Bank, country’s trade deficit had widened in September 2019 (year-on-year), with the decline in earnings from exports exceeding the decline in expenditure on imports.

Nevertheless, the trade deficit remained significantly low in the first nine months of 2019 over the same period of last year, as a result of increased cumulative earnings from exports and a sharp decline in cumulative expenditure on imports.

The deficit in the trade account widened in September 2019 to US dollars 758 million, in comparison to US dollars 713 million in September 2018.

However, on a cumulative basis, the trade deficit contracted by US dollars 2,341 million to US dollars 5,613 million during the first nine months of 2019, in comparison to US dollars 7,953 million in the corresponding period of 2018.

Meanwhile, the terms of trade, which represent the relative price of imports in terms of exports, deteriorated by 2.5% (year-on-year) as export prices reduced at a faster pace than the reduction in import prices. In cumulative terms, the terms of trade deteriorated by 0.4% during the first nine months of 2019 in comparison to the corresponding period of 2018.

Exports

Earnings from merchandise exports declined notably by 9.8 per cent (year-on-year) to US dollars 952 million in September 2019, as a result of the decline in exports in all three major sectors.

Earnings from textiles and garments declined for the first time since July 2018, on a year-on-year basis, led by a notable decline of 13.9 per cent of garment exports to the USA owing to the base effect, despite a 3.2 per cent growth in exports to the EU market.

Export earnings from petroleum products continued its declining trend observed in the recent past, mainly due to lower exports of aviation fuel owing to subdued airline activities in Sri Lanka after the Easter Sunday attacks.

In addition, led by lower exports of footwear, export earnings from leather, goods and footwear declined, while earnings from rubber products declined due to lower tyre exports. However, earnings from gems, diamonds and jewellery exports increased.

Earnings from agricultural exports declined in September 2019, contributed by lower earnings from all sub-categories except vegetables and minor agricultural products.

Earnings from tea exports declined in September 2019, due to the combined effect of lower export volumes and average export prices in line with the fall in prices in international markets.

In addition, earnings from spices declined, mainly due to lower export volumes of cinnamon and pepper, while seafood exports declined with lower export volumes broadly in line with seasonality.

However, earnings from vegetables and minor agricultural products increased, driven by fresh vegetables, fruits and edible nuts exports.

Earnings from mineral exports also declined in September 2019, year-on-year, due to subdued performance in all sub-categories.

The export volume index in September 2019 decreased by 1.7 per cent (year-on-year), while the export unit value index declined by 8.2 per cent. Accordingly, both volume and unit value contributed to subdued performance of exports during the month.

Imports

Expenditure on merchandise imports contracted for the eleventh consecutive month with a 3.3 per cent decline (year-on-year) in September 2019 to US dollars 1,711 million, driven by lower consumer goods and intermediate goods imports.

While food and beverages imports increased marginally, a decline in expenditure on consumer goods imports in September 2019 was observed as a result of the decline in nonfood consumer goods imports. Import expenditure on personal motor vehicles declined in September 2019, on a year-on-year basis.

However, in absolute terms, motor vehicle imports remained at a relatively high level since July 2019 compared to values recorded during December 2018 through June 2019, reflecting mainly the impact of personal motor vehicle imports under concessionary permits. Meanwhile, expenditure on food and beverages imports increased, mainly driven by imports of potatoes categorised under vegetables, where higher volumes were imported as a result of lower domestic supply.

Expenditure on imports of intermediate goods declined in September 2019, mainly due to lower expenditure on fuel, owing to lower prices as well as lower volumes of refined petroleum products.

In addition, expenditure on base metals imports declined in September 2019, driven by lower iron and steel imports. However, import expenditure on textiles and textile articles and mineral products increased, with higher fabric imports and cement clinker imports, respectively.

Meanwhile, expenditure on investment goods imports increased in September 2019 led by the increase in all sub categories.

Accordingly, expenditure on machinery and equipment, mainly related to electric motors and generators, increased, while expenditure on transport equipment increased with higher imports of railway equipment and commercial vehicles such as tankers and bowsers, buses and commercial cabs.

In addition, expenditure on building materials increased, driven by articles of iron and steel related to bridges and bridge sections.

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