Narrower current account surplus a good sign – BSP

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‘It reflects a growing economy’

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A NARROWING current account surplus isn’t bad at all since it indicates an actively growing economy, according to a central bank official.

“The current account is still positive at about $800 million” this year. “Next year, we expect this to be lower than $5 billion,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo told reporters at the sidelines of a business forum late Wednesday.

The BSP has assumed a narrower surplus than its $5.8 billion target after the counted a $778 million surplus in the first-half of 2016.

The first half figure, a result of a wider trade in goods deficit, was narrower by 85.2 percent from $5.25 billion a year earlier.

“I think we should clarify this. It is true that the current account is another buffer. It is another indicator that many observers—investors and credit rating agencies—are looking at. But they have to consider the state of the economy. The Philippine economy is just growing,” Guinigundo noted.

A growing economy requires a lot of infrastructure, and ramping up infrastructure spending needs a lot of
importations, particularly capital goods or raw materials and intermediate products, the BSP official pointed out.

“Now, that actually pulls down your current account position and actually reduces the current account surplus. But that is not exactly bad,” he said.

Guinigundo noted a lower current account surplus may indicate that the economy is investing in its ability to process goods in the future. “Over time, you improve your ability not only to export but also to produce for the domestic economy,” he said.

“So that should be appreciated in a proper context. Maybe, we call it moderation,” he added.

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. It is one of the major components of the balance of payments.

Analysts have indicated the current account surplus was likely to shrink as a result of weak exports.
Singapore-based bank DBS expects the current account surplus to reach $4 billion this year, as exports fall by another 5 percent.

IHS Markit noted the export performance of the Philippines this year is part of a broader slump in exports across many Asian countries, and reflects the impact of the continued economic slowdown in china and its impact on manufacturing supply chain across East Asia.

For the Philippines, this means a current account surplus that is narrower, according to Nomura. In terms of numbers, it means 1.3 percent of the gross domestic product (GDP) this year instead of 3 percent and 0.5 percent of the GDP next year instead of 2.8 percent.

From the perspective of HSBC, the current account surplus is likely to settle at 1.3 percent of the GDP in 2016 and 0.9 percent of the GDP next year, from 2.6 percent in 2015, due to a surge in capital goods imports for infrastructure development.

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