‘Dominant external factors’ to erase surplus
The central bank has reversed its forecast for a modest balance of payments (BOP) surplus for 2014 and now expects the country to register a deficit as policy normalization from advanced economies continue to impact the investment climate in emerging markets including the Philippines.
The Bangko Sentral ng Pilipinas (BSP) trimmed its BOP projection this year to a deficit of $3.4 billion from the $1.1 billion surplus projected in July.
“We finished the review of BOP projections. We took into account the developments seen since July up to present. The dominant factors affecting the BOP are external in nature, specifically the monetary policy in United States, which has affected the financial markets,” BSP Governor Amando Tetangco Jr. announced to reporters on Friday.
Tetangco noted that there has been a reallocation of investments by asset managers and other investors, adding that the impact of the normalization in the monetary policy of the US has affected not only the Philippines but also other emerging markets around the world.
“This is not something peculiar to the Philippines but it’s a phenomenon that’s been observed around the world in the emerging markets in reaction to what is happening in the advanced economies, particularly the United States,” he added.
As of October, the country’s payments balance stood at $24 million surplus, the lowest surplus level since the $500 million posted in July. In the 10 months to October, the cumulative BOP deficit was $3.41 billion, only a slight improvement from the $3.43 billion deficit recorded through the end of September.
The balance of payments summarizes the country’s economic transactions with the rest of the world over a certain period. It consists of the current account, the capital account, and the financial account.
Dragged by weak capital account
In terms of components, the central bank believes that the current account, one of the main components of the payments balance, will remain in surplus this year, but will be more than offset by weakness in the capital account.
The BSP now projects that the current account surplus will reach $6.6 billion or 2.2 percent of gross domestic product (GDP) this year from the previous projection of $6 billion or 2 percent of GDP in July.
Current accounts consist of transactions in goods, services, primary income and secondary income, and measure the net transfer of real resources between the domestic economy and the rest of the world.
Offsetting the expected surplus in the current account is the negative performance of the capital account, a BOP component that shows the flows for the use of labor and financial resources between resident and nonresident institutional units.
“In the capital account, because of the impact of the policy normalization, we now see a bigger negative contribution to the overall BOP,” Tetangco said.
By next year, however, the central bank said that the BOP is projected to return to surplus position of $1 billion.