Import slowdown to further narrow current account gap

MANILA, Philippines — JP Morgan Securities Singapore Pte. Ltd. sees a slower outflow of US dollars this year amid the projected slowdown in capital goods imports due to limited pickup in capital expenditures.

Shaoyu Guo, economist at JP Morgan, said the current account (CA) deficit of the Philippines would narrow to 1.6 percent of gross domestic product (GDP) this year from the projected 1.8 percent of GDP last year.

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.

A deficit means the Philippines spends more foreign exchange than what comes in the form of foreign direct investments, foreign portfolio investments, remittances, among others.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit narrowed by 12.1 percent to $34.59 billion from January to November last year.

Imports contracted by 4.6 percent to $99.15 billion while exports remained steady at $64.56 billion from $64.58 billion.

Imports have been declining year on year from June to November last year.

For November alone, the trade shortfall improved by 18 percent to $3.34 billion.

Imports declined by 7.9 percent to $8.94 billion while exports slipped to $5.59 billion.

Guo said scope for capital expenditures pickup remains limited.

Statistics showed importation of raw materials and intermediate goods fell by 12.6 percent to $36.34 billion.

Imports of mineral fuels, lubricant, and related matters likewise dropped 10.1 percent to $11.56 billion.

On the other hand, capital good imports inched up by 2.6 percent to $33.12 billion.

“Fiscal spending surged in recent months, but driven mainly by current expenditure, which suggests that the impulse from fiscal spending to capital goods imports remains limited,” Guo said.

The BSP expects the country’s CA shortfall to widen to $8.4 billion or 2.1 percent of GDP this year from the revised projection of $5.6 billion or 1.5 percent of GDP last year.

The central bank sees imports growth rebounding to eight percent next year after slowing to two percent this year, while exports growth is expected to pick up to four percent from one percent.

On the other hand, the increase in the earnings of the business process outsourcing (BPO) sector would remain steady at five percent, tourism receipts at 12 percent, and cash remittances at three percent in 2020.

The balance of payments (BOP) surplus is likewise expected to thin to $3 billion or 0.7 percent of GDP this year from the revised $4.8 billion or 1.3 percent of GDP last year.