Philippine current account gap to widen in 2019 on weak exports

Credit: REUTERS/ELOISA LOPEZ

The Philippines is expected to end the year with a wider current account deficit, the central bank said on Friday, as the outlook for exports deteriorated due to weaker global demand.

Current account deficit seen at 2.8 pct of GDP in 2019

BOP position to revert to surplus of $3.7 bln in 2019

Wider c/a deficit due to weak exports growth

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MANILA, June 14 (Reuters) - The Philippines is expected to end the year with a wider current account deficit, the central bank said on Friday, as the outlook for exports deteriorated due to weaker global demand.

This year's current account deficit will likely reach $10.1 billion, or 2.8 percent of gross domestic product, the central bank said, wider than an earlier forecast of an $8.4 billion gap and greater than last year's $7.9 billion deficit.

But strong foreign portfolio inflows and foreign direct investments will strengthen the country's balance of payments (BOP) position. The central bank forecast a surplus of $3.7 billion this year from a previous estimate of a $3.5 billion deficit.

Imports were seen growing 7.0% in 2019. While slower than an earlier estimate of 9.0%, it would still outpace the downwardly revised growth forecast of 2.0% for exports, the central bank said.

"We are seeing weaker economic activity and that's pushing down the global demand for exports," said Dennis Lapid, central bank director for economic research.

The Philippines has recorded large trade gaps since last year, widening its current account deficit and adding pressure on the peso PHP=, which weakened to 52.02 to the dollar after the central bank projected a wider deficit.

Michael Ricafort, economist at Rizal Commercial Banking Corp, said the improvement in the country's BOP's position - a reflection of sustained foreign exchange inflows - should provide greater support for the currency.

Central bank Deputy Governor Diwa Guinigundo said trade deficits were to be expected as the government continues to spend more on infrastructure meant to support growth and strengthen the economy's buffers against global economic uncertainties.

"Precisely because we continue to spend more and more on infrastructure...we should be able to build a critical mass of capacity for exports and more stable imports so that the current account will be more or less stable at below 3 percent," Guinigundo said.

The central bank has started to unwind some of its policy tightening last year when it cut its benchmark interest rate PHCBIR=ECI by 25 basis points in May and announced a three-step reduction in banks' reserve requirement ratio to boost growth.

(Reporting by Neil Jerome Morales and Karen Lema Editing by Jacqueline Wong)

((karen.lema@thomsonreuters.com; +632 841-8938; Reuters Messaging: karen.lema.thomsonreuters.com@reuters.net))

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