Central bank raises BoP projection

The Bangko Sentral ng Pilipinas (BSP) expects the country’s balance of payment (BoP) position to post a bigger surplus this year, but also anticipates a wider current account deficit.

In a statement late on Friday, the central bank said it raised its BoP forecast amid “sustained positive global and domestic economic growth prospects, decelerating inflation, as well as the pickup in world trade activity.”

The BSP’s latest projections show the BoP will register a surplus of USD 2.3 billion, equivalent to 0.5% of gross domestic product (GDP) this year, higher than its earlier projection of USD 1.6 billion (0.3% of GDP).

The BoP provides a glimpse of the country’s transactions with the rest of the world. A surplus indicates that more money entered the economy, while a deficit indicates that more funds left.

“Based on the foregoing and the actual figures recorded in the first half of 2024, the overall BoP position is projected to register a higher surplus relative to the previous projection round for this year and the next,” the central bank said.

Latest BSP data showed that the country’s BoP level in the January-August period stood at a USD 1.6-billion surplus, lower than the USD 2.1-billion surplus a year ago.

“Meanwhile, the Philippine economy is seen to maintain its growth momentum, supported by resilient domestic demand, lower inflation trajectory, and timely enactment of the national budget,” the BSP said.

It also noted that the improved BoP outlook is driven by the government’s continued efforts to improve the business environment by ramping up infrastructure development and implementing reforms to boost investments.

The Philippine economy grew by 6.3% in the second quarter, the fastest since 6.4% in the first quarter of 2023.

For the first half of the year, GDP averaged 6%. The government is targeting 6-7% growth this year.

Meanwhile, the BSP said emerging risks to the BoP outlook “remain broadly balanced.”

“On the downside, commodity price volatility due to geopolitical and extreme weather events, trade tensions, as well as possible mobility risks from emergence/re-emergence of highly infectious diseases (e.g., mpox), weigh down on the country’s external sector prospects,” it said.

For next year, the BSP expects the BoP surplus to reach USD 1.7 billion, equivalent to 0.3% of GDP.

“For 2025, the overall BoP position is likely to settle at a higher surplus relative to the previous projection exercise, with net inflows from the financial account continuing to be a major contributor alongside a narrowing current account gap.”

Next year’s BoP outlook is driven by expectations of sustained global demand and trade activity, the BSP said.

“While there are reasons for optimism on the BoP outlook for next year, the assessment remains subject to downside risks from potential market instability and from escalations in geopolitical and geoeconomic risks including the brewing conflict in the Middle East and US-China trade tensions.”

CURRENT ACCOUNT DEFICIT

Meanwhile, the central bank now projects the current account deficit to reach USD 6.8 billion, equivalent to -1.5% of GDP.

This is wider than its earlier forecast of USD 4.7 billion (-1% of GDP). The current account covers transactions involving goods, services and income.

For 2025, the BSP expects the current account deficit to hit USD 5.5 billion (-1.1% of GDP), also bigger than USD 2 billion (-0.4% of GDP) previously.

In the first half, the current account deficit stood at USD 7.1 billion, accounting for 3.2% of GDP.

“The wider current account deficit in 2024 was due to the reduction in the growth forecasts for goods and services exports,” the BSP said.

It lowered its 2024 forecast for goods exports to 4% from 5% but retained its 6% projection for next year.

The central bank said merchandise exports are expected to show “subdued performance.”

“The local semiconductor industry, with its heavy reliance on legacy products and downstream assembly, does not appear to be benefiting from the AI-induced upturn in global electronics demand,” the BSP said.

“Compensating in part for the expected weakness in semiconductors are exports of other electronic products (e.g., electronic data processing, consumer electronics, telecommunications, medical/industrial instrumentation, and automotive electronics) which are seen to be driven by the tech replacement cycle and overall recovery in global demand.”

The central bank kept its growth forecasts for goods imports at 2% this year and 5% for 2025.

Meanwhile, the BSP anticipates service exports to expand by 13% this year, a tad lower than the earlier projection of 14%. It kept its forecast for service exports at 10% for 2025.

The central bank also maintained its projections for services imports at 13% this year and 6% next year.

“Growth in service exports is also likely to be modest following the weaker-than-expected performance of the BPO sector due to lower receipts from other business services, particularly contact centers,” it said.

“Nonetheless, the current account outlook continues to be supported by robust growth prospects for travel receipts, along with the steady inflows of overseas Filipino [worker] (OFW) remittances.”

The growth forecast for BPO receipts was trimmed to 6% this year from 7%. It maintained the 7% BPO revenue growth projection for next year.

Meanwhile, the central bank also kept its forecasts for cash remittances at 3% this year and the next.

For the first seven months, remittances from OFWs rose by 2.9% to USD 19.332 billion from USD 18.785 billion a year ago.

As for the financial account, it is expected that outflows may reach USD 10.5 billion this year, which is higher than the previous estimate of USD 7.7-billion outflows.

The financial account records transactions between residents and nonresidents involving financial assets and liabilities.

Financial account outflows stood at USD 10.5 billion in the first semester, latest data from the BSP showed.

“The higher net inflow in the financial account was due largely to the notable rise in portfolio investments driven, in turn, by stronger global and domestic growth prospects, which will also benefit from the indications of a shift in the monetary policy stance toward easing by the US Fed,” the BSP said.

“These factors should continue to shore up higher levels of both foreign direct investments (FDI) and foreign portfolio investments (FPI) for the remainder of the year,” it added.

The BSP also hiked its forecast for FDI net inflows to USD 10 billion this year from USD 9.5 billion.

The latest central bank data showed FDI net inflows increased by 7.9% year on year to USD 4.4 billion in the first half of the year.

The central bank also raised its FPI net inflow projection to USD 4.2 billion for this year, up from USD 3.1 billion. Short-term foreign investments yielded a net inflow of USD 1.46 billion in the first seven months, skyrocketing by 830.7% from a year ago.

Gross international reserves (GIR) are expected to reach USD 106 billion this year, higher than the previous forecast of USD 104 billion.

Dollar reserves has risen by an annual 7.39% to USD 106.92 billion as of end-August.

“Given prospects of continued foreign exchange inflows into the economy, there is scope to expect further buildup in the GIR for 2024-2025,” the BSP added. – Luisa Maria Jacinta C. Jocson, Reporter