MANILA - Fitch Solutions on Monday said it expects the Philippines’ current account deficit to further widen because of higher food and energy prices. This, in turn, will weigh down the peso even more, the company said.
Current account deficit refers to the difference between the money a country gets by selling products and services to other nations and the money it spends to buy goods and services from other countries.
Fitch Solutions said the Philippines’ current account deficit as a share of GDP will widen to 4.3 percent in 2022, up from a previous forecast of 2.4 percent. This figure would slightly narrow to to 3.9 percent in 2023, Fitch said.
“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,” Fitch Solutions said.
The company said that combined with tightening global financing conditions, this higher deficit will likely further weigh on the peso.
The wider current account shortfall, combined with tighter global financing conditions, will likely weigh on the Philippine peso, Fitch Solutions said.
The Philippine Statistics Authority said the country's trade deficit rose 54.1 percent year-on-year in April to $4.77 billion.
Import growth is likely to remain strong after the government cut tariffs on food products like rice, pork and corn. As world crude oil prices remain high, Fitch said the Philippines will continue to have “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.
Meanwhile the company said it expects export growth to slow due to ongoing supply chain disruptions and rising interest rates in developed economies.
It also warned that the slowdown of China due to recurring Covid lockdowns, will also affect the Philippines.
Remittances from overseas Filipinos are “unlikely able to offset the impact of the surging goods trade deficit” Fitch said.
“A wider current account shortfall, combined with tighter global financing conditions, will likely continue to weigh on the Philippine peso.”
The peso weakened to P55.979 to $1 at the close of Monday’s trade, according to the Bankers Association of the Philippines.
The peso has weakened by around P5 to the greenback since the start of the year.