Fitch Solutions, a unit of the Fitch Group, revised its forecast for the 2022 Philippine current account deficit as a share of the gross domestic product to a wider 4.3 percent from the previous estimate of 2.4 percent as imports growth continues to outpace exports.
“The Philippines will see its current account deficit widen sharply in 2022 on the back of elevated food and energy prices. We at Fitch Solutions now forecast the current account deficit to come in at 4.3 percent of GDP in 2022, revised from 2.4 percent previously and significantly larger than the 1.8 percent shortfall seen in 2021,” Fitch Solutions said in a report Monday.
“We have already seen signs of a significantly wider current account shortfall in the first-quarter data, which showed that the deficit widened to 5.0 percent of GDP, from 3.5 percent in the fourth quarter of 2021. Over the coming quarters, we expect that elevated energy and other commodity prices will keep imports elevated, while export growth will likely slow due to global economic headwinds,” it said.
It said the wider current account shortfall, combined with tighter global financing conditions, would likely weigh on the Philippine peso which breached the 56-per-dollar level recently. The peso closed at 55.979 against the greenback Monday.
“The Philippines’s terms of trade has continued to worsen over the past few quarters. Given that commodity prices is likely to remain relatively elevated, we expect import growth to continue outpacing exports in the remaining half of the year and forecast good trade deficit to widen to 17.1 percent as a share of GDP in 2022,” it said.
Fitch Solutions said imports growth would likely remain strong after the government implemented a slew of tariff cuts in an attempt to tame rising prices. The government earlier extended until the end of 2022 an executive order that lowers the tariff rate for rice imported outside Southeast Asia to 35 percent from 40 to 50 percent.
The government has also cut tariffs on corn and pork and announced the temporary removal of a 7-percent duty on coal imports. Brent crude prices remained persistently high in the first half of this year, hovering above $100.00 per barrel.
“Given that the Philippines is a net importer of oil, we continue to expect a higher energy import bill compared to prior years. As a result, we expect import as a share of GDP to rise to 32.1 percent in 2022 relative to 26.9 percent as a share of GDP in 2021,” Fitch Solutions said.
Fitch Solutions expects export growth to slow at the back of global economic headwinds. It said ongoing supply chain disruptions and hawkish monetary policies among most major developed market central banks would weigh on the global economic outlook, dampening demand for Philippine exports.
It said China—which is one of the Philippines’ largest trading partners—was experiencing a growth slowdown on recurring COVID lockdowns. Fitch Solutions revised China’s GDP growth downwards to 3.6 percent in 2022 from 4.5 percent.
Fitch Solutions also said remittances—a huge contributing factor to the Philippine economy which represents 10 percent of GDP in the last decade—would unlikely offset the impact of the surging goods trade deficit even as secondary income surplus continue to remain stable.