Current account gap seen breaching target
The Philippines could post a wider current account deficit this year—topping the Bangko Sentral ng Pilipinas’ (BSP) target—and in 2019, an ING Bank Manila economist said.
“[S]trong domestic demand continues to worsen the trade imbalance and would likely result to a wider current account deficit,” Joey Cuyegkeng noted in a report released on Tuesday.
He said that ING Bank expected the trade deficit to widen by $10-$15 billion this year on weak exports and moderately higher imports.
As of June this year, the country’s trade deficit ballooned by 62.6 percent to $19.105 billion from a year earlier
The ING economist pointed out that during the same period, structural inflows, especially growth of overseas Filipino workers remittances, had been “erratic.” In particular, he recalled that June remittances dropped 4.5 percent from a year ago on a larger annual drop of money sent from the Middle East.
“The result is a larger financing need to supply USD (US dollar) for a larger trade deficit. The three-month moving average shortfall in remittances has worsened to -$1.1bn (billion) shortfall from May’s three-month moving average amount of -$845m (million),” he explained.
“Without any near-term corrective measure and sustained pro-cyclical fiscal deficit spending, we expect the current account deficit to [hit]an equivalent of -1.9 percent of GDP (gross domestic product) in 2018 and to -2.2 percent of GDP in 2019,” Cuyegkeng said.
The ING economist’s current account forecast for 2018 is higher than the BSP’s projection of a $3.1-billion shortfall equivalent to 0.9 percent of GDP.
The current account — a major component of the balance of payments — 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.
Last year, the Philippines incurred a current account deficit equivalent to 0.8 percent of the country’s GDP.
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