Current account to end in surplus on recovery of exports, imports

By Melissa Luz T. Lopez,
Senior Reporter

THE PHILIPPINES could see its current account return to a modest surplus on the back of expectations that external trade will recover during the second semester, an analyst from a global bank said.

In a report, Standard Chartered Bank economist Chidu Narayanan said the country’s current account will likely sustain a recovery during the rest of 2017 to eventually end at a surplus, which would defy the initial forecast given by the Bangko Sentral ng Pilipinas (BSP).

As of end-June, the country’s current account — which factors in the country’s balance of trade (exports and imports), net income from abroad, and net current transfers — stood at a $234-million deficit during the first six months, although narrower than the $424-million gap posted during the same period in 2016.

“The current account (C/A) compression experienced by the Philippines has been a market focus and the subject of persistent client queries over the past few weeks. The country recorded its first quarterly C/A deficit in over 13 years in Q1, but we do not believe that this is worrisome, or that it is a ‘new normal,’” Mr. Narayanan said in a commentary sent to reporters.

“We forecast a moderate 2017 C/A surplus of 0.2% of GDP (gross domestic product), and expect a return to monthly surpluses in the medium term.”

The Philippines became a net lender to the rest of the world during the three months ended June as it posted a $15-million surplus.

The second quarter surplus was supported by $5.5 billion in revenues from the booming business process outsourcing sector, alongside some $6.86 billion in money sent home by overseas Filipino workers (OFW), according to central bank data. These helped offset a bigger trade in goods deficit, which inched up to $9.7 billion from $9.5 billion previously.

For Mr. Narayanan, external trade will continue its uptick to eventually peak by November, which in turn will propel the current account tally to positive territory by yearend.

“We forecast a stronger C/A balance in November 2017, and a return to surplus as the November 2016 balance rolls out of the calculation. Our 2017 C/A forecast is more optimistic than the central bank’s forecast of a 0.2%-of-GDP deficit,” the bank economist said.

“Higher-than-expected trade deficits, on higher oil imports or an increase in capital goods could skew risks to the downside to our forecast.”

The central bank expects the full-year tally to settle at roughly $600-million deficit or 0.2% of GDP — the first time it will record a shortfall in 15 years — amid heavy importations of raw materials and capital goods as the Philippine government takes on its ambitious infrastructure spending plan. If realized, this would also spell a turnaround from last year’s $601-million surplus.

Analysts have said that the Philippines’ vanishing current account surplus has significantly weighed on market sentiment towards the peso, on top of global developments and geopolitical tensions that turn investors away from emerging-market currencies.

However, central bank officials have dismissed concerns over the trade gap, saying that it was natural for a developing economy to spend more in order to “accelerate investment ambitions.”

ING Bank N.V. Manila previously said that they also expect the full-year current account to log a $450-million surplus at 0.2% of GDP.