DBS, ING forecast current account surplus at 0.2%-0.4% of GDP this yr
Remittances from overseas Filipino workers (OFW) will continue to grow briskly this year and could help counter the impact of a widening trade deficit on the country’s current account, global financial institutions DBS Bank and ING Bank said in their latest market reports.
Structural inflows – of which remittances are one of the two components – had allowed the economy to post years of current account surpluses and escape from an economic structure of twin deficits, Dutch bank ING said.
The Philippines’ current account has been consistently posting annual surpluses since 2005, at $1.99 billion that year, to $600 million in 2016.
However, for this year, the Philippines is expected to post twin deficits as the government has programmed a 3-percent budget deficit ceiling, while the central bank expects the current account to hit a deficit of $600 million.
Balanced current account
ING Bank Manila senior economist Joey Cuyegkeng pointed out in his market report released on Tuesday that outsourcing revenues, the other component of structural inflows, grew about 9.5 percent year-on-year in the first quarter of this year.
“We expect a full-year outsourcing revenue growth of 10 percent this year and like the BSP, we expect a 4 percent year-on-year increase in OFW remittances,” Cuyegkeng said.
The ING economist said this combination would allow the economy to post a more balanced current account surplus equivalent to about 0.2 percent of gross domestic product (GDP).
Remittances by overseas Filipinos rose to $2.58 billion in May, resurging from a 15-month low in April largely on the back of remittances from land-based workers with long-term contracts, Bangko Sentral ng Pilipinas (BSP) said in its report released on Monday.
Personal remittances increased by 11.6 percent from an inflow of $2.31 billion in April and by 7.1 percent from an inflow of $2.41 billion in May 2016.
For the first five months of the year, remittances reached $12.61 billion, up 5.2 percent from $11.99 billion a year earlier.
To counter a widening trade deficit
Singapore-based bank DBS said total remittances for the year, based on their current pace of growth, may exceed $27 billion, another record-high for the economy.
In 2016, total personal remittances reached a record high of $29.7 billion.
“This is important, not only for the positive impact it has on personal consumption growth but also as a counter to the widening trade deficit,” DBS said in its daily report on Tuesday.
The multinational banking and financial services corporation based in Singapore pointed out that that while remittances were still trending at $2.3 billion a month, the trade deficit moderated to a monthly pace of about $2 billion.
“Even if we were to expect import demand to remain firm on the back of the domestic infrastructure overhaul, the current account (C/A) balance may slip into a modest deficit of about 0.3 percent of GDP this year,” it said.
As a major component of the country’s balance of payments, the current account measures the net transfer of real resources between the domestic economy and the rest of the world.
In the first quarter of this year, the Philippines’ current account reverted to a deficit of $318 million, equivalent to 0.4 percent of GDP—a turnaround from the $730 million surplus last year.
The central bank forecasts a $600-million current account deficit for 2017, equivalent to -0.2 percent of GDP, which would reflect for the most part the continuation of a recent trend showing a widening trade deficit.