The country’s growing appetite for imported products will likely bloat the trade deficit to a record $28 billion this year, DBS Bank of Singapore said in a report Wednesday.
DBS said at the current pace, the trade deficit would account for almost 1 percent of gross domestic product, a record high, and likely put this year’s current account in a deficit of around -0.3 percent of GDP.
Latest data from the Philippine Statistics Authority showed that merchandise trade deficit widened 16 percent year-on-year to $6.5 billion. Last year, trade deficit amounted to $24.5 billion, or double the $12.2-billion shortfall recorded in 2015.
DBS said despite the record trade deficit expected this year, foreign inflows such as remittances from Filipinos working overseas would help cover the gap.
“[There are] three reasons why we are not worried about this. First, overseas foreign remittance flows have also stayed robust. Foreign remittances came in at $2.6 billion in March 2017, also a record-high and this brings the first-quarter total to $7 billion,” the bank said.
“While there are still risks of a moderation going forward, total remittances are still set to reach about $28 billion this year. As long as remittances can offset the trade balance, the current account deficit will stay manageable,” DBS said.
The government said the widening trade deficit stemmed from a strong demand for imports rather than a slump in export growth. Both exports and imports increased 17 percent year-on-year in the first quarter.
DBS said the jump in imports growth was driven by a strong demand of both capital and consumer goods, adding that monthly imports of capital and consumer goods were some 60 percent and 30 percent higher, respectively, than levels in early-2015.
“More importantly, external financing risks remain limited for now. Foreign reserves continue to provide more than 5x coverage of short-term external debt, among the highest in the region. As no significant change is likely in the near-term, the widening trade deficit is far from being a reason to panic,” DBS said.
Money sent home by Filipinos working overseas in March 2017 rose 10.7 percent to a record $2.615 billion from $2.362 billion a year ago, as demand for Filipino talents remained strong.
The March cash remittances was also higher than $2.169 billion in February. This brought cash remittances in the first quarter to a record $6.953 billion, up 7.7 percent from $6.457 billion a year ago.
Personal remittances, which include non-cash items, rose 11.8 percent in March to $2.915 billion from $2.606 billion a year ago. This brought personal remittances in the first quarter to $7.709 billion, up 8.1 percent from $7.134 billion.
Money sent home by Filipinos working overseas rose 5 percent in 2016 to $26.9 billion from $25.607 billion in 2015. This surpassed Bangko Sentral’s projection of a 4-percent growth last year and the 4-percent actual growth in 2015.
The solid growth in remittances remains a backbone of economic growth. Remittances represented 8.1 percent of the gross national income and 9.8 percent of gross domestic product in 2016. GDP grew 6.9 percent last year.