The central bank revised its balance of payments (BOP) position forecast down to a deficit this year, a reflection of global and domestic economic developments after the first-quarter data showed a current account deficit.
“The overall BOP position for 2017 is seen to approximate the deficit in 2016 at about $0.5 billion. This is a downward revision from the $1 billion surplus that was initially projected for 2017,” Bangko Sentral ng Pilipinas (BSP) Department of Economic Research Director Zeno Ronald Abenoja said in a press briefing on Friday.
Abenoja noted the revision was due to a reversal of the current account into a deficit and a net outflow in the financial account.
The BSP’s latest forecast is wider than the full-year 2016 BOP deficit of $400 million.
Key considerations in the 2017 BOP projection were the possible impact of US President Trump’s policies, China’s growth outlook at risk with a high debt load, and a subdued outlook on emerging market capital flows, Abenoja said.
“The policies of US President Donald Trump has been considered, including the possible impact on the Philippines’ external position. The outlook for emerging markets, including China, which is seen to slowdown from 6.7 percent in 2016, was also taken into account,” he said.
“Capital outflows to emerging markets are seen being a little bit subdued this year, given some policy uncertainty… even as capital are still expected to continue to flow in emerging markets including those that have solid track records in terms of macroeconomic fundamentals such as the Philippines,” he added.
Abenoja said the forecast for the current account surplus this year was revised downward to a $600 million deficit, equivalent to -0.2 percent of gross domestic product (GDP), compared with an $800 million surplus projected in December, which “reflects for the most part the continuation of the recent trend of a widening trade deficit.”
“This is due to higher growth in imports, in particular, imports of capital goods and intermediate goods. This is in line with the maintenance or continuance of the strong growth of the Philippine economy,” he said.
Merchandise imports this year are expected to grow by 10 percent, the same projection in December 2016, while merchandise exports are expected to rise to 5 percent from an earlier forecast of 2 percent.
The BSP also revised its net outflow forecast for the financial account to $500 million, from $1.1 billion.
“We hope the numbers will improve at the start of the second half of the year,” BSP Deputy Governor Diwa Guinigundo said.
The BSP also took into consideration the positive impact on the BOP of an upward revision in the International Monetary Fund’s global growth outlook to 3.5 percent this year, signs of recovery in global trade, a less gradual pace in policy tightening by the US Fed, firmer commodity prices, and strong domestic growth prospects.
“Revision in global growth outlook for the year is supposed to affect our exports in a positive way. Global trade is showing recovery. That’s positive for exports. And it shows. Exports for the first quarter of the year actually went up, unlike in the last few years when exports were actually declining and pulling down growth,” he said.
“Firmer commodity prices are also a positive for Philippine exports. And the strong domestic growth prospects, continue to dominate many of these positive factors,” he said.
Guinigundo said stronger domestic growth for 2017 and 2018 are expected because of the sustained increase in imports, particularly raw materials and capital goods.
The government targets the gross domestic product to grow by 6.5 percent to 7.5 percent this year and 7 percent to 8 percent in 2018.
Q1 current account
The BSP also said the current account reverted to a deficit of $318 million at $477 million in the first quarter of 2017, equivalent to 0.4 percent of GDP—a turnaround from a surplus in last year.
The current account in the first three months of the year reverted from a $730 million surplus during the same period in 2016 as a result of a widening trade-in-goods deficit. The growth in imports of goods outpaced that of exports.
The current account consists of transactions in goods, services, primary income and secondary income. It measures the net transfer of real resources between the domestic economy and the rest of the world.
BSP data showed the trade in goods account, composed of the merchandise trade, posted a wider deficit of $9.8 billion compared with $7.8 billion in deficit a year earlier.
“Meanwhile, higher net receipts in the secondary income, services, and primary income accounts helped offset the increase in trade-in-goods deficit,” the BSP said.
The primary income account shows how labor and financial resources between resident and nonresident institutional units flow. The account recorded net receipts of $678 billion as of end-March, up 5.7 percent higher from a year earlier.
It reflected lower dividends paid to foreign direct investors for their equity and investment fund shares in domestic enterprises, as well as lower net payments on interest on Asian Development Bank long-term investments in debt securities and lower net payments of interest on other investments by local corporations.
The net receipts of secondary income account, or current transfers between residents and nonresidents, increased by 9.5 percent to $5.9 billion.