The Philippines is expected to post a record current account surplus this year, on the back of strong remittances that will offset the wide merchandise trade deficit, DBS Bank of Singapore said in a report.
Current account, an important indicator of economic health, measures the balance between exports and imports, income from foreign investment flows and net current transfers, which refer mostly to aids or official assistance from other countries.
“Goods exports are likely to plunge 6 percent this year, while imports growth may come in around 4 percent. No surprise then that the trade deficit widens to $10 billion this year. Yet, this does not necessarily mean that we should be too concerned about the external balance,” DBS said.
“Overseas foreign workers remittances remain strong and we expect to see a gross total of $25 billion this year. The overall current account is set to record another surplus, to the tune of $11 billion this year, about 4 percent of GDP,” the bank said.
Latest government data showed that exports fell 6.9 percent in the first nine months to $43.75 billion from $47 billion a year ago.
Exports in September alone tumbled 24.7 percent to $4.4 billion from $5.8 billion a year earlier, the largest decline since September 2011.
DBS said exports of electronic products continued to outperform overall export growth, an encouraging sign as the manufacturing sector was increasingly crucial for longer-term GDP growth outlook, especially as the economy continued to diversify away from dependence on the services sector.
Money sent home by overseas Filipinos grew by 4.3 percent in September to $2.2 billion from $2.11 billion a year ago. The September expansion was a sharp turnaround from the 0.6-percent contraction in August, the lowest in 12 years when the dollar strengthened against most currencies which reduced the dollar equivalent of remittances sent from host countries.
This brought cash remittances in the first nine months to $18.4 billion, or 4.1 percent higher than $17.68 billion a year ago.
Personal remittances, which include non-cash items, also expanded by 4.3 percent in September to $2.434 billion from $2.33 billion in the same period last year. This brought personal remittances in the first nine months to $20.36 billion, up 3.9 percent from $19.6 billion a
year ago.
Remittances fuel private consumption and serve as a backbone of economic growth. Last year, cash remittances posted a record $24.308 billion, or 5.8-percent higher than $22.968 billion in 2013. It also accounted for 8.5 percent of gross domestic product in 2014.
Bangko Sentral is aiming for a conservative 5-percent growth in remittances this year.