The Philippines’ current account—a major component of the country’s balance of payments (BoP) with the rest of the world—ended 2016 in a surplus of $601 million, shrinking from a $7.3 billion surplus in 2015.
The current account surplus was equivalent to 0.2 percent of the country’s gross domestic product (GDP) last year.
The Bangko Sentral ng Pilipinas (BSP) said the country’s current account surplus last year narrowed 91.7 percent from full-year 2015 “due primarily to the widening deficit in the trade-in-goods account.”
Analysts predict a further slowdown in the current account this year on expectations of higher import demand from a growing economy and oil price increases.
Current account consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.
Trade deficit widens
The BSP’s 2016 data showed that trade in goods account, composed of exports and imports of goods, posted a wider deficit of $34.1 billion, compared with a $23.3-billion deficit a year earlier.
The gap in the goods account expanded by 46.2 percent as the rise in imports during the period, recorded at 16.6 percent, far outpaced the 0.6 percent increase in exports.
The bottom line for services receipts account—which measures production activity that changes the conditions of the consuming units, or facilitates the exchange of products or financial assets—amounted to $7.1 billion, down from the $5.5 billion net receipts posted in 2015.
“Higher net receipts were posted in computer, and technical, trade-related and other business services, which more than offset the higher net payments for insurance and pension, transport, financial and government goods and services,” the BSP said.
Export earnings in business process outsourcing (BPO) services reached $20.2 billion in 2016, higher by 12.8 percent than the $17.9 billion recorded in 2015.
In the last quarter of 2016 alone, current account registered a deficit of $1 billion or 1.2 percent of GDP, a reversal of the $1.4 billion surplus posted a year earlier.
“This resulted primarily from the widening trade-in-goods deficit, along with the decline in net receipts in the trade-in-services and primary income accounts,” it said.
With the lower current account surplus for full-year 2016, the country’s full-year payments balance swung to a $420 million deficit in 2016 from a $2.6 billion surplus in 2015.
Forecast: weak peso, wider deficit
Natixis senior economist Trinh Nguyen expects the current account to be close to zero this year due to strong domestic demand and costs of oil prices.
“This means that the peso will likely weaken versus the US dollar into the year-end, especially as the Fed hikes further while the BSP is unlikely to increase rates until the second half of 2017,” she said.
Natixis’ forecast is in line with the consensus forecast published earlier by Singapore-based DBS Bank, which said that the Philippine current account balance is on track to register a shortfall this year and next.
DBS said a burgeoning domestic demand continues to widen the trade deficit.
“Expect the current account balance to slip into a deficit this year, at circa -0.3 percent of GDP, as opposed to a projected surplus of 0.7 percent last year,” it said.
By 2018, the current account deficit is likely to widen to 1 percent of GDP, the bank added.