Close  

Peso may remain weak as current account gap seen further widening

By: - Reporter / @bendeveraINQ
/ 05:20 AM December 01, 2018

The Philippines’ current account deficit is expected to further widen next year, keeping the peso weak and government securities expensive, the Washington-based Institute of International Finance (IIF) said.

“The recent widening of current account deficits has overshadowed the near-term economic outlook of India, Indonesia and the Philippines,” Reza Siregar, head of the IIF’s Asean and India research, said in the Oct. 31 report titled “Economic Update: Asean and India Current Account Challenges.”

ADVERTISEMENT

“The Philippines’ goods trade deficit rose to 15.6 percent of GDP [gross domestic product] in the second quarter of 2018, the highest in the postglobal financial crisis period,” the IIF noted.

Across the three aforementioned countries, the IIF projected their respective current account deficits to be within the range of 2.1-2.5 percent of GDP next year.

FEATURED STORIES

“Addressing current account imbalances may entail wider import curbs, affecting investment imports. Given the high import content of investment activities, taxes on capital and intermediate imports may dampen investment and curtail GDP growth in 2019,” the IIF said.

“Structural current account deficits are expected to sustain depreciation pressures on local currencies and upward pressures on yields of local currency bonds in 2019,” it added.

The peso had fallen to 13-year lows due to market concerns on the widening current account deficit as a result of the also expanding trade-in-goods deficit.

As of June, the current account deficit ballooned to $3.1 billion—equivalent to 1.9 percent of GDP, from $133 million or only 0.1 percent of GDP a year ago.

The government had reported that the trade deficit widened to $3.9 billion in September, the biggest monthly deficit so far this year, as imports jumped while merchandise exports declined that month.

At end-September, the year-to-date trade-in-goods deficit stood at $29.9 billion.

In the case of the Philippines, India and Indonesia, the IIF said “the performance of merchandise trade has been the primary contributor to changes in current account balances for these three countries,” citing that “the correlations between quarterly movements of goods balances and current accounts between the first quarter of 2010 and the second quarter of 2018 are all well above 90 percent.”

ADVERTISEMENT

“Services balances and transfers are important buffers for current accounts in India and the Philippines. The quarterly surpluses from transfers and services averaged close to 6 percent and 11 percent of GDP for India and the Philippines, respectively, from the first quarter of 2015 to the second quarter of 2018. The Philippines received over 10 percent of GDP in remittances in 2017. The global business process outsourcing (BPO) industry is forecast to reach close to $200 billion in 2018, of which India will account for around 35 percent. Services, income, and transfers balances have been negatively correlated with the goods balances in India and the Philippines since 2010, providing much-needed cushions for their overall current account positions,” the IIF said.

Read Next
LATEST STORIES
MOST READ
Don't miss out on the latest news and information.
View comments

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

TAGS: currency, Peso
For feedback, complaints, or inquiries, contact us.



© Copyright 1997-2019 INQUIRER.net | All Rights Reserved

We use cookies to ensure you get the best experience on our website. By continuing, you are agreeing to our use of cookies. To find out more, please click this link.