THE current account deficit as a proportion of gross domestic product (GDP) is now projected at 4.7% this year from 4.5% previously, with easing commodity prices offset by strong imports of capital goods, Fitch Solutions Country Risk & Industry Research said in a report.

The 2023 projection is lower than the expected percentage in 2022 due to cheaper oil, it said.

“As a net importer of energy, the Philippines will benefit from lower energy prices in 2023, and we expect remittance inflows to remain resilient,” Fitch Solutions said.

“That said, strong capital goods imports and a slowdown in export growth will keep the trade deficit elevated relatively to historical levels,” it added.

Fitch Solutions’ current account deficit forecast for 2022 is 5% of GDP, due to the continuing threat of weakening global demand.

The current account deficit was at $5.8 billion in the third quarter, against the $974-million year-earlier deficit, as the deficit in the trade in goods widened.

The third quarter 2022 deficit was equivalent to 6.2% of GDP, against a deficit of 1.1% a year earlier, the Bangko Sentral ng Pilipinas said last month.

The current account balance, a gauge of the balance of payments due over the short term, was in deficit by $17.8 billion in the nine months to September, much higher than the year-earlier deficit of $2.3 billion. 

The cumulative current account deficit “has likely widened to 5.2% of GDP for the whole of 2022 (versus our previous estimate of 5% of GDP),” Fitch Solutions said.

“While we still expect the current account deficit to narrow due to lower commodity prices and resilient remittance inflows, weakening global demand and sustained high imports of capital goods will keep the current account shortfall considerably larger compared to its historical five-year average of a 0.5% deficit (2017-2021),” it added.

Fitch Solutions expects goods export growth to slow to 5% this year from an estimated 6% in 2022, due to a broader slowdown in demand as a result of higher borrowing costs.

“Factoring in the lagged effects of tightening global monetary conditions across the world, our global team expects that global GDP growth will slow to 1.9% in 2023, versus 3.1% in 2022. In particular, we expect the US to enter a mild recession in 2023, which would bode poorly for Philippine exports,” Fitch Solutions said.

Philippine shipments to the US, its leading export market, accounted for about 15.4% of Philippine exports in 2021.

“Although we expect real GDP growth in China (which is the second largest export destination at 15.1% of total) to accelerate to 5% in 2023, from an estimated 3.3% in 2022, the recovery remains bumpy due to uncertainties around the COVID-19 (coronavirus disease 2019) situation,” it said. — Keisha B. Ta-asan