HIGHER OIL PRICES will continue to degrade the Philippines’ trade balance and current account, though improvements are expected with a “slow” economic recovery, according to ANZ Research.
Other threats to the trade balance include disruptions to domestic production and physical constraints on exports, it added.
“These (constraints) are powerful enough to offset the impact of planned public infrastructure spending on imports,” Sanjay Mathur, ANZ Research Chief Economist for Southeast Asia and India said in a note.
According to the Philippine Statistics Authority, the trade deficit stood at $2.76 billion in May, smaller than the $3.08 billion deficit posted in April but larger than the $1.31 billion deficit from a year earlier.
The current account was in deficit by $614 million in the first quarter, a reversal from the $225-million surplus a year earlier, according to the central bank.
The current account includes flows related to trade in goods and services; remittances from overseas Filipino workers; profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from abroad.
Mr. Mathur said the impact of higher oil prices has been “particularly harsh” and is already reflected in the growth of imports even while the country had not yet seen a “meaningful” re-opening of its economy.
Imports rose 47.7% to $8.65 billion in May from a year earlier.
Despite the risk from higher oil prices, Mr. Mathur said trade is expected to improve. The Philippines will also benefit from the continued rebound of remittance inflows as well as receipts from the business process outsourcing (BPO) industry, he added.
“The outlook for remittances and BPO revenues is also turning brighter as Middle East and European economies recover. Remittances from these two geographies had suffered the most last year,” Mr. Mathur said.
On Tuesday, the central bank said cash remittances rose 13% year on year in May to $2.382 billion. This marked the fourth consecutive month of remittance growth and was the largest expansion since the 18.5% posted in November 2016.
Mr. Mathur said the BPO firms are likely to get a boost from the recovery of economic activity in the US, as 60% of the local BPO industry’s revenue is generated by that country. — Luz Wendy T. Noble