Current account deficit seen to narrow this year

MANILA, Philippines — The Philippines is seen booking a smaller current account (CA) deficit this year after hitting an all-time high last year on increased domestic activity and higher import volumes and prices, according to economists.

Nomura of Japan now expects the CA deficit to narrow further and settle at 3.3 percent of gross domestic product (GDP) this year from 3.9 percent of GDP for this year.

“Taking into account the narrowing of the goods trade deficit in Q3, we revise lower our 2023 CA deficit forecast to 3.3 percent of GDP from 3.9 percent previously, narrowing further from 4.5 percent in 2022 but still historically wide (i.e. versus the deficits since 2016),” Nomura chief ASEAN economist Euben Paracuelles said.

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

A CA deficit occurs when a country spends more on imports than it receives on exports.

Paracuelles pointed out that the new forecast factors in a further narrowing of the shortfall in the fourth quarter, but only modestly.

“This reflects seasonal support from higher worker remittances towards the festive holidays and yearend, while food imports are likely to be less than we forecast previously owing to easing food inflation pressures (and hence a reduced need to import in order to increase domestic food supply,” he said.

However, the Japanese bank expects capital goods imports to pick up and provide some offset as government spending on infrastructure are likely to gain more traction.

Latest data from the Philippine Statistics Authority (PSA) showed the Philippines booked a trade deficit of $39.82 billion from January to September this year, 14.7 percent lower than the $46.69 billion recorded in the same period last year.

Exports contracted by 6.6 percent to $54.54 billion, while imports shrank by 10.2 percent to $94.36 billion.

In September alone, the trade shortfall narrowed by 27.3 percent to $3.51 billion.

This after exports slipped by 6.3 percent to $6.73 billion, while imports contracted at a faster pace of 14.7 percent to $10.24 billion from $12.01 billion.

“This is the smallest deficit in a year, and brought the total trade deficit in Q3 to $11.8 billion, lower than the $13.2 billion in Q2. The trade deficit in September narrowed despite export growth turning negative again at -6.3 percent year-on-year from 4.2 percent,” Paracuelles said.

ANZ Research also sees the country’s CA deficit narrowing to 3.4 percent of GDP this year from 4.4 percent of GDP last year.

ANZ chief economist for ASEAN Sanjay Mathur and Asia economist Krystal Tan said the Philippines is in the middle of the pack in terms of best scope for improvement when it comes to its CA outlook.

Just like other countries in the region, Mathur and Tan said the country booked a balance of payments (BOP) deficit as of the second quarter of this year.

“Ahead, we believe developments in current account positions and other investment will continue to be the main determinants of the BOP,” the authors said.

Last month, the Bangko Sentral ng Pilipinas lowered its CA deficit forecasts to 2.5 percent of GDP from 3.4 percent of GDP for 2023 and to 2.1 percent of GDP from 3.2 percent of GDP for 2024.