Lower 9-mth surplus, IMF global growth outlook cut, Fed rate hike factored in
The central bank slashed its balance of payments (BOP) surplus projection for 2016 after seeing the first nine months yielding a lower-than-expected excess, and taking into account the International Monetary Fund’s (IMF) downward revision to its global growth estimate for the year and possible further interest rate hikes in the US next year.
For this year, the overall BOP surplus is expected to be lower at $500 million, instead of the $2 billion estimated in May for the full year. In 2015, the actual BOP surplus stood at $2.6 billion.
The Bangko Sentral ng Pilipinas (BSP) reported that the actual payments position of the country showed a BOP surplus of $1.6 billion for January to September 2016, lower than the $1.8 billion recorded in the corresponding period in 2015.
The BSP added, however, the macroeconomic indicators are likely to recover next year.
In a press briefing on Friday, the BSP said it had to lower its expectations for the BOP surplus this year after considering the IMF’s cut to its global growth estimate for 2016, the tightening in US Fed policy expected in 2017 and the possible impact of the new policies of the Donald Trump administration, among other factors.
“We need to emphasize that 2016 has been particularly challenging. There were a lot of unexpected
developments in the markets. Some [others]were anticipated,” BSP Deputy Governor Diwa Guinigundo told reporters.
The latest projection for 2016 BOP is expected to contribute 0.2 percent to gross domestic product (GDP) for the year.
Current account surplus narrows
There is a marked contraction in the expected amount of current account surplus under the revised 2016 forecast.
The BSP now estimates the 2016 current account surplus at $2.5 billion, equivalent to 0.8 percent of GDP. The expected surplus level is down sharply from $5.8 billion under the full-year projection the central bank made in May, and much lower than the $8.4 billion surplus achieved in 2015.
“We continue to see a higher deficit in trade-in-goods, which reflects the slow recovery in the economies of traditional exports destinations like US, Japan and China,” said Zeno Ronald Abenoja, director at BSP’s Department of Economic Research,
Due to the global economic slowdown, goods exports by the Philippines are now seen contracting by 3 percent, reversing what used to be projected as a 3 percent expansion for the period.
Meanwhile, goods imports for 2016 are expected to grow 11 percent, higher than the earlier projection of 7 percent.
The government highlights what it sees as a positive angle to it,
Abenoja said discussions over the latest round of BOP projections were held in November, weighing the repercussions not only of the IMF’s reassessment of the 2016 global economic growth forecast and the uncertainty in the US, but also reduced concern over China’s near-term prospects; improved outlook and possible reflow of capital into emerging market economies in the middle of 2016, gradual recovery in oil prices and favorable domestic growth prospects.
The research head said the team expects the BOP to continue to be supported by remittances, business process outsourcing revenues and tourism receipts.
“It is important to note that the strong showing of imports, particularly due to the inward shipments of power generating machines, office and electronic data processing machines, telecommunications equipment, vehicles are all supportive of expansion in investments, and even exports, and in the near to medium term. This is an important characterization of the trade deficit that we have seen for 2016,” Abenoja said.
Focusing further on the current account surplus, and setting aside its contraction, the official said what accounts largely for the excess is continued growth in overseas Filipino workers’ remittances.
The BSP maintained its projection for remittances growth at 4 percent.
“This projection takes into account the continued appreciation of the dollar against the currencies of major host economies and we continue to also see the growth of remittances due to steady employment of workers…,” he said.
Financial accounts net inflow
An upward revision happened in the BSP’s projection for net inflow in financial account for this year, to $600 million.
“This reflects the higher-than-expected net acquisition of residents’ portfolio investments abroad,” Abenoja said.
However, the new projection for residents’ portfolio investment is much lower compared with the $3.2 billion net inflow posted in 2015.
The drop is traced to a net outflow of $1.1 billion expected in foreign portfolio investments, even as foreign direct investment is anticipated to increase to $6.7 billion.
The expected net outflow in foreign portfolio investments reflects the search for higher yields by investors elsewhere, Abenoja added.
The research team, however, expects FDI inflows to be driven by sustained positive development in the domestic economy, the increasing number of public-private partnership projects, and potential FDI flow into manufacturing, utilities, real estate and entertainment.
As a result, year-end gross international reserves (GIR) are anticipated to improve to about $83.7 billion from the actual $80.7 billion posted in 2015, it said.
At this level, the GIR remains ample, covering about 9.5 months’ worth of imports of goods and payments of services and income, it added.
Going forward, the BSP sees the BOP posting a surplus of $1 billion surplus next year, contributing 0.3 percent to GDP.
Abenoja said this can be attributed to a pick-up in global economic growth in 2017, which, if based on the October projection by the IMF, should be 3.4 percent. The brighter outlook for next year also considered a gradual increase in international oil prices, less volatility in global financial markets, and the continued favorable growth prospects for the domestic economy.
Q3 current account
The BSP on Friday also announced that the country’s current account during the third quarter of 2016 remained in surplus at $979 million, equivalent to 1.3 percent of the country’s GDP, higher than the surplus in 2015.
Current account in the third quarter increased from the $969 million surplus recorded during the same period in 2015, attributed to an “increase net receipts in trade-in-services, and primary and secondary income account which tempered the widening trade-in-goods deficit.
However, the trade in goods account posted a wider deficit of $7.9 billion, compared with the $6.3-billion deficit seen a year earlier.
The primary income account, which shows flows for the use of labor and financial resources between resident and nonresident institutional units, recorded net receipts of $601 million in July to September “attributed mainly to decreased net payments of investment income arising from lower dividend payments to foreign direct investors.”
The net receipts of secondary income account, or current transfers between residents and nonresidents, increased by 8.1 percent to $6 billion.