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Thursday, March 28, 2024

DBS: Current account robust

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DBS Bank of Singapore said the narrowing of the Philippines’ current account surplus is not a cause of concern because it reflects the increase in domestic investments which will trigger stronger economic growth in the long term.

Latest data showed that the surplus in current account, one of the major components of the balance of payments, stood at $0.8 billion in the first half of 2016, well below the $5.3 billion posted a year ago.

“… However, the narrowing of the current account surplus may not necessarily be a bad thing at all. By far, the cause of the increasingly high trade deficit is robust import growth,” DBS said in a report Tuesday.

It said imports of capital goods on a monthly basis were trending at 20 percent higher than where they were at the end of 2015. Total imports from January to July 2016 were already 50 percent more than the amount in the same period last year.

“Clearly, the narrowing of the current account surplus merely reflects this rapid rise in domestic investment, which will only support long-term growth potential,” DBS said.

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“And at a time when foreign reserves coverage of short-term external debt remains above 5 times, the external liquidity position is unlikely to pose any real threat anytime soon,” DBS said.

Reserves as of end-August this year climbed to a record $85.895 billion from $85.51 billion a month ago, due mainly to the national government’s net foreign currency deposits and Bangko Sentral ng Pilipinas’ foreign exchange operations and income from investments abroad. The end-August reserves already surpassed the target of $82.7 billion this year.

DBS recently lowered its projected current account surplus for the Philippines this year to $4 billion (or 1.3 percent of GDP) from $8 billion previously.

Bangko Sentral said last week a revision to its $5.8-billion 2016 current account surplus forecast might happen later this year. Bangko Sentral said current account remained in surplus at $778 million in the first half of 2016 but lower than the $5.3 billion in the same period last year due mainly to the widening of the trade-in-goods deficit.

DBS said exports of goods were set to fall another 5 percent this year. It said the weakness was beginning to show in the electronics cluster.

Earlier, Japanese global financial firm Nomura said it was expecting the current account to narrow to 1.3 percent of GDP this year from 2.6 percent last year, dragged down by lower numbers in the second quarter. Nomura said current account would further narrow to 0.5 percent of GDP in 2017.

However, Nomura said this would not be a source of concern as it reflected a further improvement in investment spending by the government. It added  foreign direct investment inflows also continued to increase.

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