CONSISTENT WITH ANALYST FORECASTS

BSP sees shrinking current account surplus in 2016

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THE $5.8 billion in current account surplus projected by the central bank for 2016 has assumed a downward bias, following a lower surplus in the first-half of the year.

This is consistent with the position of analysts who cited a shrinking surplus as a result of weak exports.
In a press briefing, an official of the Bangko Sentral ng Pilipinas noted a lower current account surplus in the second quarter is likely to shrink the 2016 surplus from a year earlier.

The current account – a major component of the balance of payments (BOP) – in the second quarter of 2016 remained in surplus at $65 million, or 0.1 percent of the country’s gross domestic product (GDP), but lower than the surplus in the same period in 2015.

The current account surplus in April to June declined by 98 percent from $3.2 billion a year earlier on the “substantial widening of the trade-in-goods deficit.”

The 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.

BSP data showed the merchandise trade account – exports and imports – posted a wider deficit of $16.39 billion the $9.52 billion a year earlier.

This brought the first-half current account surplus of $778 million lower by 85.2 percent from $5.25 billion a year earlier. The surplus was equivalent to 0.5 percent of the GDP.

“As you could see the current level of the current surplus is at $0.8 billion and it is, if you compare that to the full year projection of $5.8 billion, you could see that it has a downward bias. Even if you double it, it would be lower than the full-year projection,” Francisco Dakila Jr., managing director at the Monetary Policy Sub-Sector of the BSP, said.

While the other components of the current account grew year-on-year during the period – trade-in-services (up 53.5 percent), primary income (up 65.6 percent), and net receipts in secondary incomes (up 5 percent) – the surplus will be pulled down by the widening trade-in-goods deficit, Dakila noted.

“Expect that if you look at exports and imports, exports would have a little bit downward bias … whereas imports are stronger. So when you combine the two, then that accounts for the development in the current account,” he said.

As of the first half of 2016, BSP data showed exports declined by 5.2 percent while imports rose by 18.3 percent from a year earlier.

Singapore-based bank DBS expects the current account surplus to reach $4 billion this year, as exports fall by another 5 percent.

“The weakness in exports was prevalent across sectors, including in electronics. Exports of electronic products are down by 8 percent year-on-year in May to July 2016, a worrying sign given that electronics are an important pillar of total export growth,” said DBS economist Gundy Cahyadi.

“After posting three consecutive years of growth, exports of electronic goods may shrink by about 3 percent this year, on the back of a sluggish global demand,” he said.

A notable impact of lower exports will be on the current account, he said, noting that even if remittances were likely to hit a record-high $26 billion this year, the current account surplus will settle at a narrower 1.3 percent of the GDP.

“As evidenced in the growth of imported capital goods, the narrowing of the current account surplus merely reflects the increase in domestic investment,” Cahyadi noted.

Sharing the same view is IHS Markit.

“The weak export performance of the Philippines in 2016 is part of a broader slump in exports across many Asian countries, and reflects the impact of China’s continued economic slowdown and the transmission effects to the Asian manufacturing supply chain across East Asia,” IHS Markit Asia-Pacific Chief Economist Rajiv Biswas said.

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