Peso slips as yawning trade gap seen to persist
The peso on Monday closed at 55.979 against the US dollar, depreciating once again after closing at 55.92:$1 on July 8.
With expensive oil bloating the Philippines’ imports being paid in US dollars, economists expect the peso to remain weak and spillover to high inflation.
In a report, Dutch financial giant ING said it expects the goods trade deficit in May to have widened to $5.32 billion from $4.77 billion in April based on its projections that May’s imports likely jumped 28.6 percent year-on-year, outpacing exports growth of 7.8 percent. The Philippine Statistics Authority (PSA) will release the international merchandise trade data for May on Tuesday.
“Philippine imports are expected to sustain the robust double-digit pace of growth as the oil import bill more than doubles due to pricey crude oil,” ING said. The Philippines is a net oil importer.
ING senior Philippines economist Nicholas Antonio Mapa on Monday noted that the yawning merchandise trade deficit was among the top reasons for the peso’s weakness. The local currency fell through the 56:$1 level on July 7, its weakest position against the US dollar in nearly 17 years.
“It’s the fundamental reason why the peso is down—more dollar outflows (bloated imports) versus dollar inflows from exports, remittances and the business process outsourcing (BPO) sector,” Mapa said.
“The net of these transactions is the current-account balance, which the Bangko Sentral ng Pilipinas (BSP) expects to swell to an all-time high deficit of $19.5 billion this year, only to be surpassed by the next year’s projected $20-billion deficit,” Mapa added.
Separately, think tank Fitch Solutions said the Philippines’ deficit in its current account, the sum of the country’s transactions with the rest of the world in goods and capital, is expected to widen further in the next several quarters as prices of food and energy remain high while the peso weakens.
In a commentary, Fitch Solutions said it revised upward its forecast for the Philippines’ current-account deficit this year to 4.3 percent of gross domestic product (GDP) from 2.4 percent as previously forecast, a significant increase from the 1.8-percent percent recorded in 2021.
Still, Fitch Solutions’ estimate was better than that of the BSP, whose emerging figure for this year’s current-account deficit reached $19.1 billion or 4.6 percent of GDP.
Fitch Solutions said it had already seen signs of a significantly bigger current-account shortfall in 2022, as first-quarter data showed that the deficit widened to 5 percent of GDP, from 3.5 percent in the fourth quarter of 2021.
“Over the coming quarters, we expect that elevated energy and other commodity prices will keep imports elevated, while export growth will likely slow due to global economic headwinds,” Fitch Solutions said, adding that “the wider current-account shortfall, combined with tighter global financing conditions, will likely weigh on the Philippine peso.”
Other think tanks also expect the Philippines’ yawning trade deficit to linger, such as London-based Capital Economics, which forecasted imports to have grown 22 percent last May against a 5.5-percent exports increase.
