Huge trade deficit seen pushing peso to 55 to $1 in 2019

The nagging concerns on the ballooning trade-in-goods and current-account deficits will further weaken the peso to 55:$1 next year, London-based Capital Economics said.

“Having widened to a record $4.2 billion in October, we think the trade deficit in the Philippines will continue to expand over the coming year, putting further downward pressure on the peso. While export growth was very weak in October, imports grew strongly due mainly to a surge in imports of capital goods, driven by strong demand from the government’s infrastructure programs,” Capital Economics Asia economist Alex Holmes and assistant economist Christina Iacovides said in a Dec. 14 report titled “Philippines external position to weigh on peso.”

“The trade deficit has been the main factor behind the shift in the country’s current-account position, which has gone from a surplus to a small deficit. This, in turn, has put the peso under downward pressure. Despite regaining a little ground over the past two months, the currency is still down over 5 percent against the dollar year-to-date,” Capital Economics noted.

“Looking ahead, we think the current account deficit will continue to widen to around 2.5 percent of GDP (gross domestic product) next year. As such, we expect the peso to lose more ground against the US dollar, falling a further 5 percent, to 55 to the dollar by end-2019,” Capital Economics said.

Last Friday, the Bangko Sentral ng Pilipinas reported that the current account was projected to end this year at a $6.4-billion deficit, or more than twice the previous deficit projection of $3.1 billion.

The current-account deficit is also seen further ballooning to $8.4 billion next year.

As imports grew strongly while merchandise exports contracted during the first 10 months, Socioeconomic Planning Secretary Ernesto Pernia last week sought steady support for the weak export sector.

“With export growth unlikely to pick up pace in the near term and imports to continue to expand, stronger support must be given to key and emerging exports sectors in the country,” Pernia, who heads the state planning agency National Economic and Development Authority, said in a statement. —BEN O. DE VERA