Philippines seen incurring smaller CA deficit

MANILA, Philippines — Economists are expecting the Philippines to incur a smaller current account (CA) deficit although it will remain sizeable this year given the tech downcycle, the boost in capital goods imports from infrastructure projects and higher food imports to boost domestic supply.

New York-based GlobalSource Partners is now expecting a smaller current account shortfall of four percent of gross domestic product from 4.7 percent of GDP for this year and further to 3.6 percent of GDP for 2024.

The current account consists of transactions in goods, services, primary income and secondary income. This account measures the net transfer of real resources between the domestic economy and the rest of the world.

A deficit occurs when a country spends more on imports than it receives on exports.

“Last year’s multiple external shocks to both the current and financial accounts will remain in play this year, which will keep the current account shortfall still large and the BOP (balance of payments) in deficit,” GlobalSource said.

According to the think tank, world economic and financial prospects – such as the decelerating inflation and slowing economic growth, which points to smaller rate hikes by the US Federal Reserve, as well as weaker inflationary pressures, particularly for oil due to slowing global economic growth – suggest an improved balances for the Philippines.

“China’s reopening and economic growth recovery is an added boon that could potentially pare the current account deficit,” it said.

Data from the Organization for Economic Cooperation and Development (OECD) showed Philippine exports of goods and services to meet Chinese final demand comprised about a third of the pre-pandemic $18 billion gross exports to China, while goods exports, which include the Philippines’ participation in global supply chains, grew at less than four percent since the pandemic or three years to 2022 compared to over 15 percent in the three years to 2019.

Moody’s Analytics said Chinese tourist arrivals that sharply declined to less than 40,000 last year have considerable room to grow. In 2019, Chinese tourist arrivals reached 1.7 million.

“The only caveat is that the pre-pandemic number includes tourists recruited to work in the online gaming industry, and current legitimate calls to ban the industry altogether would likely hinder a quick return to the 2019 figure,” it said.

Aside from Chinese tourists, Moody’s Analytics pointed out that tourism receipts in general are expected to grow sharply given still substantial pent-up demand.

Tourist arrivals last year were only a quarter of the 8.2 million inbound travelers in 2019, with dollar earnings reaching only $2.1 billion from January to September.

By way of comparison, tourism receipts in 2019 reached $9.8 billion, about seven percent of total current account receipts.

GlobalSource also sees remittances from overseas Filipino workers (OFWs) increasing by four percent in 2023 and 2024 from 3.6 percent in 2022.

Merchandise exports growth is expected to slow down to two percent this