Weaker external position seen in 2024 on tepid exports, tourism receipts

MANILA  —The Philippines’ external position is projected to weaken this year on expectations of tepid dollar inflows from anemic exports and tourism receipts, a unit of Fitch Group said.

The Philippines’ current account deficit, as a share of the economy, is projected to widen to 2.8 percent in 2024, from 2.6 percent last year, BMI Research said in a commentary sent to journalists on Monday.

The current account covers the country’s trade in goods and services like BPO earnings, cash remittances and tourism receipts. If the current account is in a deficit, the country is said to be spending more dollars abroad to pay for its imports than it receives from export sales.

Rebound

A large current account deficit could then pressure the peso. The Marcos administration now expects the local currency to average between P55 to P58 against the US dollar in 2024 until 2028, from the old forecast of P53 to P57, as the anticipated rise in imports would likely prop up local demand for the already strong greenback.

READ: Peso seen to track regional appreciation vs dollar starting 2024

As it is, BMI’s forecast stands in stark contrast to the Bangko Sentral ng Pilipinas’ (BSP) own prediction of a smaller current account deficit at 2 percent of gross domestic product (GDP) this year, from the projected 2.5-percent gap in 2023.

This year’s shortfall will also be much larger than the Philippines’ average of 0.4 percent seen between 2015 and 2019, if BMI’s projection comes true.

“The BSP thinks that trade activity will rebound in 2024 but we believe otherwise,” BMI said.

“Instead, we think that the global economy is set to slow further which will exert pressure on the country’s external sector,” it added.

Trading partners

The Fitch unit explained that demand from both the United States and China—the Philippines’ major trading partners, which account for nearly one-third of the country’s total exports sales—would likely weaken this year amid expectations of a “shallow” recession in Washington and a slow economic recovery in Beijing. This, while the surge in travel demand when the world emerged from pandemic lockdowns is expected to fade “eventually,” which could hurt tourism receipts, another source of dollars for the Philippines, BMI said.

READ: China’s economy projected to slow sharply in 2024, World Bank says

Meanwhile, imports are expected to grow stronger this year on the back of continued recovery in consumer demand at home and heightened purchases of construction materials needed for President Marcos’ ambitious infrastructure program.

“Risks to our current account balance lean toward a narrower deficit and hinges largely on the state of the global economy,” BMI said.

“A better performance than we currently expect will improve Philippine export performance,” it added. —Ian Nicolas P. Cigaral INQ