Current account deficit has already peaked in 2nd half of 2018 — economists

MANILA, Philippines — Investment banks said the country’s current account deficit may have already peaked in the second half of last year.

HSBC chief economist for Asean Joseph Incalcaterra said while the Philippines’ widening current account deficit remains a concern, the tightening episode that saw the Bangko Sentral ng Pilipinas (BSP) lifting interest rates by a total of 175 basis points last year to rein in inflationary pressures may help address the concerns.

“True, the widening current account deficit is a concern, but we expect the deficit to have peaked in second half of 2018, and the 175 basis points of hikes should help contain imbalances,” the economist said.

The CA position measures the net transfer of real resources between the domestic economy and the rest of the world. It consists of transactions in goods, services as well as primary and secondary income.

HSBC expects the country’s current account deficit at 1.8 percent of gross domestic product (GDP) in 2019 and 2020 from the projected 1.5 percent of GDP in 2018.

The BSP sees the deficit widening further to $8.4 billion or 2.3 percent of GDP this year from the projected $6.4 billion or 1.9 percent of GDP last year.

Latest data from the central bank showed the Philippines incurred a current account deficit of $6.5 billion in the first nine months of last year, reversing the $968 million surplus recorded in the same period in 2017.

The shortfall was brought about primarily by the continued widening deficit in the trade-in-goods account despite the higher net receipts posted in the trade-in-services, primary and secondary income accounts.

Meanwhile, HSBC sees the BSP slashing the reserve requirement by another 300 basis points following a 200-basis point cut last year.

Nicholas Mapa, senior economist at ING Bank Manila, said further pressure on the peso is expected to return in the coming month after enjoying a strong rally in the first week of the year as the country is expected to post a current account deficits for the foreseeable future.

“Limiting the peso’s gains was onshore demand from corporates as well as lingering concerns about the country’s current account deficit with the country still seen to experience stark demand for imports in the coming year,” Mapa said.