Fears that the Philippine economy may be overheating amid a “sharp fall” in the current-account surplus were “overdone” as the surge in imports supports infrastructure development as well as manufacturing expansion, London-based economic research firm Capital Economics said.
“Although the key cause of the fall in the [Philippines’ current-account] surplus has been a sharp rise in imports, the import surge is being driven by strong demand for just two categories of goods: Capital goods and electronic items, which combined account for around two-thirds of total imports,” Capital Economics economist Gareth Leather noted in a report titled “Philippines-current account deficit no cause for alarm.”
Instead of being a cause for concern, booming demand for capital goods is an encouraging sign that after a series of delays, the government’s infrastructure drive is making progress, he said. “Poor road, rail and port facilities act as a drag on economic growth in the Philippines and better infrastructure should over time boost the productive potential of the economy,” Capital Economics said.
“Neither is the surge in electronic imports anything to be alarmed by. A majority of electronics items imported into the Philippines are in fact intermediates (circuit boards and microchips), which are assembled before being shipped to third markets. This bodes well for exports over the coming year and suggests that after a few years in the doldrums the country’s electronics sector could finally be getting back on its feet,” Capital Economics added.
In 2016, the current account surplus narrowed to $601 million. While the current account remained at a surplus for the 14th straight year, last year’s surplus was 91.7-percent lower than the $7.3-billion surplus in 2015. The 2016 surplus was equivalent to a mere 0.2 percent of the gross domestic product, whereas the 2015 figure was a bigger 2.5 percent of the GDP.
The current account surplus figure in 2016 was below the $2.5-billion target, equal to 0.8 percent of GDP.
The BSP mainly attributed the drop in the current account surplus to the widening deficit in the trade-in-goods account.
Last year, the trade-in-goods deficit increased by 46.2 percent to $34.1 billion from 2015’s $23.3 billion as imports jumped 16.62 percent while exports grew by just 0.6 percent.
For 2017, the BSP sees the current account remaining at a surplus of $800 million as the projected 10-percent growth in imports would outpace the 2-percent exports growth.