Trade concerns still persist

The developed world has been receiving a lot of flak for an economic slowdown. Fears of a recession in the eurozone are common talk in the international media and the effect on exports from Pakistan is largely believed to be negative. Detailed trade data released by the Pakistan Bureau of Statistics has been testifying to the slump in export volumes witnessed for the large part of FY12. The latest data released uptil April FY12 reiterate that for 10MFY12, volumes of major textile products, including value-added products such as knitwear, bed wear, towels and cotton cloth have declined significantly on a year-on-year basis. However, the quantities exported of major subcategories in the textile group have increased in April relative to March. According to Shahzad Saleem, Chairman Pakistan Readymade Garments Manufacturers Association, this is hardly a cause for celebration as the overall picture is still quite gloomy. "The month-on-month increase is mainly because of some backlog in export orders. Some shipments have been released lately, which had been held back by European economies a few months ago. Besides, it is also a seasonal effect in most likelihood because the demand for clothing tends to increase during this quarter," Saleem explained. Some respite had been provided by higher per unit prices of value-added textile products towards the former half of this fiscal year. But even those have started to come down for some major categories such as bed wear, cotton cloth and towels. This is explained by the decline in raw cotton prices which affect the prices of value-added good after a lag. "The decline in prices comes with a slowdown in demand as well as the decline in per unit raw material prices," Saleem explained further. As for rice exports, for much of FY12, rice exports had declined on a year-on-year basis in terms of quantity, while prices have stayed upbeat relative to the previous year. However, the trend has recently started reversing, with an increase in quantities exported with a decrease in per unit prices. This is likely to continue going forward owing a better than expected global rice production, as well as a good crop output locally. Worth mentioning is the nearly 70 percent year-on-year decline in wheat exports in July-April FY12. The increase in domestic wheat support prices explains this trend, since export of wheat becomes unfeasible when international prices are below the equivalent local support prices. This is indicative of a policy inefficiency hurting domestic exports. The imports side, meanwhile, showed an over 30 percent year-on-year increase in the amount of petroleum products imported during 10MFY12. Crude petroleum imports, however, decreased on a year-on-year basis, indicative of a greater reliance on the refined product. Going forward, the slump in oil prices seen in the last few months might bring down the per unit price of imported petroleum after a lag. However, global oil prices are believed to have largely bottomed out, and long-lasting benefits cannot be expected on this front. Exports continue to leave a lot to be desired and a slowdown in the eurozone raises further concerns which ought to be urgently addressed.

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Selected commodities: Jul-Apr FY12
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                                      Apr FY12
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                       Total     Y/Y       M/M
                      (mn $)   % chg     % chg
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Exports
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Total                 19,369    -3.6      12.0
Rice                   1,735    -3.2      21.2
Cotton yarn            1,452   -22.8       4.0
Cotton cloth           1,970    -5.4       6.9
Knitwear               1,625   -13.1      14.2
Bed wear               1,453   -13.8      15.1
Towels                   556    -8.4      23.9
RMG*                   1,327    -5.0       1.9
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Imports
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Total                 37,042    14.8       7.4
Petroleum products     8,355    69.8       4.8
Petroleum crude        4,228     9.9      67.6
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* readymade garments
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Source: PBS
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