FITCH SOLUTIONS Macro Research said the narrowing of the Philippines’ current account deficit, largely due to plummeting import demand, has led it to cut its estimates for the current account-to-Gross Domestic Product (GDP) ratio in 2019 and 2020.

In a commentary issued Thursday, Fitch Solutions said it now projects the current account-to-GDP ratio to come in at minus 0.4% this year and minus 1.2% in 2020, compared with its earlier estimates of minus 2.1% and minus 2.8% in 2019 and 2020.

The current account balance largely measures a country’s transactions with the rest of the world, and a negative balance usually means it is a net importer. A narrowing negative balance signals it is importing less, which could mean reduced raw material imports, a forward indicator for future re-exporting activity by the manufacturing industry.

“We at Fitch Solutions have revised our current account-to-GDP forecasts for the Philippines to minus 0.4% and minus 1.2% in 2019 and 2020, from previous forecasts of minus 2.1% and minus 2.8%. The sharp revision for 2019 reflects the significant drop in import demand through the year, with import growth of minus 10.8% year-on-year in October,” it said.

The central bank has reported that the country’s current account deficit narrowed to $145 million in the second quarter from a $3.28 billion a year earlier.

This brought the first-half total to a $4.788-billion surplus, a turnaround from the $3.257-billion deficit a year earlier.

Fitch Solutions said that aside from the high year-earlier base effect and the lower costs of energy imports, weak import demand may also be attributed to “weaker economic activity in the country “and a wider moderation in trade activity within the Asia region.”

It said export growth was flat during the first 10 months, largely due to external headwinds that affected other countries in the region.

“We expect these external challenges to remain in place, namely in the form of continued US-China trade tensions, slowing growth in both countries and political uncertainty in Hong Kong,” it said.

Next year, Fitch Solutions still sees domestic activity driving growth, including higher government spending which will support “firmer import demand” for the year.

“While any rebound in imports will be partially capped due to subdued re-exporting opportunities, the ramp-up in stimulus from the Philippine government will support a surge in building material imports and growth in capital goods,” it said.

In addition, it said that the deficit could “widen more aggressively” if external demand continues to weaken, “with downside risks emanating from US-China tensions or a sharper slowing of activity from the major economies.”

“Nevertheless, the deficit could widen more than we are currently forecasting, were external demand to soften more than we are anticipating. A sharper deterioration in the global economy could see export growth contract further, with sectors such as tourism suffering on the back of falling household confidence were global unemployment to rise suddenly.”

The current account is a component of the balance of payments (BoP) position.

Third quarter BoP will be released Friday.

The BoP registered a surplus for a fourth month in a row in October at $163 million, turning around from the year-earlier deficit. — Beatrice M. Laforga

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