THE country’s widening current account deficit (CAD) is expected to place more pressure on the peso to depreciate, according to an international think tank.
In its latest economic brief, ANZ Research said the country’s CAD could widen to 2.9 percent of GDP in 2024 compared to the 2.7 percent of GDP posted in 2023.
The wider CAD is mainly due to the ballooning trade deficit which reached $5.1 billion in September 2024, the widest in 20 months.
“We think the current account deficit is likely to widen further as the government is more focused on enhancing economic growth. We think that this could exert further depreciation pressure on the peso,” ANZ Research said.
The country’s trade deficit widened, ANZ Research said, due to declining exports and higher imports. The decline in exports was mainly due to weak electronic exports.
The think tank said the country’s exports are plagued by its declining share in global exports since 2017 and the absence of gains in exports in absolute terms.
According to ANZ Research, the country’s monthly exports have remained static at a little over $6 billion since 2021. It added that on a 12-month moving average basis, total exports fell 0.7 percent in September 2024 compared to December 2021.
“The problem of declining competitiveness has been particularly pronounced for the electronics sector, which accounts for 55 percent of the Philippines’ overall exports,” ANZ Research said.
“The monthly run rate of electronics exports in 2024 has been $3.4 billion, the lowest in four years. This contrasts with the performance of electronics exports of its regional peers such as Singapore, South Korea and Taiwan,” it added.
The think tank also noted that the country’s semiconductor exports, the top export of the Philippines, have fallen 7.2 percent compared to last year. This happened at a time when these global exports posted an 18.6-percent growth.
The low value-added semiconductor products produced by the Philippines may account for this, according to ANZ Research.
The country mainly assembles and packs semiconductors.
However, some of the slack in exports have been made up for by domestic demand and household consumption.
The country’s imports were mostly composed of consumer goods which grew 7.8 percent in the third quarter—a figure that, ANZ Research said, is a record high for consumer imports.
“We do not expect imports to taper off in near future for two reasons. Firstly, the government has allocated 5.2 percent of GDP to infrastructure spending in 2025,” ANZ Research said.
“Secondly, the central bank has lowered its policy rate by 50 basis points (bps) and intends to cut by another 100 bps over the course of the monetary cycle. Any impetus to domestic demand from these impending rate cuts will bolster imports,” it added.
Earlier, the International Merchandise Trade Statistics (IMTS) showed that the country’s trade deficit posted a 43.4-percent growth in September 2024 and was the highest since the 81.1-percent growth recorded in August 2022.
The country’s trade deficit has posted consecutive growth since the 7.5-percent growth recorded in May 2024. Prior to the September estimate, the deficit grew the fastest at 18.2 percent in July this year.
The PSA said the trade deficit reached $5.09 billion in September, which placed the country’s nine-month deficit at $39.4 billion. (See: https://businessmirror.com.ph/2024/11/07/trade-deficit-posts-largest-growth-in-2-years-psa/).
Image credits: Nonie Reyes
