Singapore-based bank DBS expects the Philippines to post a higher current account deficit this year and the next but notes that the economy has enough buffers to counter the impact.
“We revised up our current account deficit forecast for 2017 and 2018 to 0.6 percent and 1.1 percent of GDP (gross domestic product) respectively, from our previous estimates of 0.3 percent and 1 percent,” it said in a report released during the weekend.
The current account — major component of a country’s payments balance — measures the net transfer of real resources between the domestic economy and the rest of the world.
The Philippines’ current account fell to a deficit of $318 million in the first quarter, equivalent to 0.4 percent of GDP and a reversal from the $730-million surplus recorded in the same period in 2016.
In line with the central bank view, DBS noted that the Philippines’ exports of goods and services grew by 20 percent in the first half of 2017.
“Other than services, the agriculture and manufacturing sectors were the key beneficiaries of this robust export growth, each having grown by 5.6 percent and 7.7 percent, respectively in first-half 2017. Note that exports of manufactured goods were up a strong 10.4 percent in first-half 2017, reversing the 2.2 percent decline in 2016,” it explained.
Moving ahead, the bank said the pace of export growth was likely to ease going forward, if only due to the high base effects.
“For now, we forecast exports of goods and services to expand by 10.2 percent in 2018, down from a projected 16.5 percent this year,” it said.
Import growth was even stronger, DBP noted, with import demand likely to remain firm in 2018 as a programmed infrastructure overhaul continues.
Still, the bank said: “At this juncture, we are not overly-concerned about the widening of the current account deficit.”
The bank pointed out that remittance flows remained robust at $13.8 billion as of June 2017 and were on track to exceed $27 billion this year, which would be another record high.
“Besides, foreign reserves coverage remains sufficient at this juncture. Foreign reserves amount to more than 5 times of short-term external debt as of first-half 2017,” it said.
Bangko Sentral Governor Nestor Espenilla Jr. last month said the Philippines’ current account deficit remained manageable as it was still below 1 percent of GDP.
“[W]e are not talking about a blow-away current account deficit. The current account deficit today is much lower than 1 percent of GDP and we have no intention to see it go higher than that,” he said.