BSP cuts forecasts for BOP, current acct

US rate hike, slower global growth

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has lowered the country’s projected balance of payments (BOP) position and current account surplus for this year due to the interest rate hike in the US, the impact of policies of the Trump administration, and slower global growth.

BSP Deputy Governor Diwa Guinigundo said the lower projections for this year are due to the soft global economy as well as the challenges caused by external shocks.

“We need to emphasize that 2016, especially the last quarter, has been particularly challenging. There were a lot of unexpected developments,” Guinigundo told reporters yesterday.

He cited the much anticipated interest rate hike by the US Federal Reserve the other day as well as the impending interest rate hikes next year and in 2018 and 2019.

“Most were anticipated but not in terms of timing as well as the magnitude of those adjustments. That is the reason why there is a region-wide weakening of currencies, because of the expected increase of the US Fed and the early pronouncements of president-elect Donald Trump,” he said.

The BSP now expects a lower BOP surplus of $500 million or 0.2 percent of gross domestic product (GDP) for this year instead of the previous forecast of $2 billion or 0.7 percent made last May.

The BOP shows a summary of a country’s transactions with the rest of the world. Components include trade, foreign direct and portfolio investments, and even remittances from Filipinos abroad. A surplus means more money went into the economy, while a deficit means otherwise.

The central bank now sees a lower current account surplus of $2.5 billion or 0.8 percent instead of the earlier forecast of $5.8 billion or 1.9 percent of GDP for this year.

The current account is an important indicator about the economy’s health. It is the sum of the balance of trade in goods and services, less imports as well as the net income from abroad and net current transfers.

The government expects the country’s merchandise exports to shrink by three percent instead of growing by three percent. Latest data from the Philippine Statistics Authority showed the country’s exports earnings contracted by 5.3 percent in the first 10 months of the year.

On the other hand, imports are expected to grow faster at 11 percent from the previous forecast of seven percent due to the importation of capital equipment, industrial machineries, motor vehicles, and telecom equipment. Imports posted a double-digit growth of 13.1 percent from January to October this year.

The BSP sees the financial account, including foreign direct investment (FDI) inflows and foreign portfolio investments or hot money, booking a net outflow of $600 million instead of $500 million this year.

The central bank said FDI inflows would reach $6.7 billion instead of $6.3 billion this year, while foreign portfolio investments is expected to book a net outflow of $1.1 billion.

Zeno Ronald Abenoja, director of the BSP’s Department of Economic Research, cited the downward revision of the global growth outlook based on the World Economic Outlook of the International Monetary Fund (IMF) last October.

Abenoja explained other factors considered in the downward revision include the uncertainty in the resumption of the US Fed tightening as well as the possible impact of Trump policies.

He also cited the reduced concern on China’s near-term prospects, the gradual recovery in oil prices, and improved outlook and possible reflow of capital to emerging market economies.

The BSP also noted the sustained economic growth momentum as the country has posted positive GDP growth for the past 70 quarters. The GDP growth accelerated to 7.1 percent in the third quarter from seven percent in the second quarter.

The central bank sees the country’s gross international reserves (GIR) hitting $83.7 billion equivalent to 9.5 months of import cover instead of $84.8 billion or 9.7 months of import cover.

It retained the growth of cash remittances from overseas Filipinos at four percent to $26.6 billion for this year.

For 2017, the BSP sees the BOP surplus doubling to $1 billion from the projected $500 million this year and the country’s current account surplus declining further to $800 million from $2.5 billion.

The BSP expects exports to inch up by two percent and the imports to maintain a double-digit growth of 10 percent next year.