Lower current account share to GDP seen

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The share of the country’s current account to gross domestic product (GDP) could drop this year, Fitch Ratings said, on the back of a wider trade deficit.

In a full ratings report for the Philippines, Fitch said it expected an expanded trade deficit to trim the 2015 current account surplus to 3.5 percent of GDP from 3.8 percent in 2014.
Based on latest data, the country’s trade deficit rose to $3.014 billion as of July this year, up from $1.516 billion during a year earlier.

The current account—a major component of the balance of payments—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.

In the second quarter of 2015, the current account surplus of $2.805 billion was narrower as a result of a deficit in the wider trade in goods. A year earlier it was $3.130 billion or 3.8 percent of GDP.


The trade in goods account, comprised of exports and imports of goods, posted a wider deficit of $3.547 billion compared with $2.384 billion a year earlier.

On a positive note, Fitch said the Philippines would continue to accumulate net external assets and reserves, with support coming remittance growth.
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“Fitch’s view assumes remittances will continue to grow steadily,” it said.

The ratings firm pointed out that high levels of overseas worker remittances were generating a large secondary income surplus, contributing to 2014’s current account surplus of 3.8 percent of GDP and despite a goods and services trade deficit of 4.5 percent of GDP.

“Persistent current account surpluses since 2002 have allowed the Philippines to build a large stock of international reserves that covered 10.3 months of imports at end-2014, compared with a median of 5.2 months for ‘BBB’ rated peers,” it said.

Fitch said high levels of reserves could make the Philippines more resilient than many other emerging market economies to shifts in global investor sentiment arising, for example, from a tightening of United States monetary policy.

The ratings agency also dismissed expectations that remittances originating from the Middle East could drop as a result of falling oil prices.

“There is limited evidence from data so far of falling oil prices affecting remittances from the Middle East,” it said, noting that the region has been the main contributor to remittance growth since 2013, helping offset a decline in money coming from the United States.

Fitch nevertheless warned that the scenario could change if low oil prices were to persist, slowing investments that would weaken demand for foreign construction workers in the Middle East.

As of end-July, personal remittances from overseas Filipino workers grew by 4.6 percent to $15.67 billion from $15 billion, while cash remittances—or funds coursed through banks—climbed 4.8 percent year-on-year to $14.16 billion.

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