MUFG and Fitch Solutions see wider CAD spectrum

The country’s current account (CAD) deficit is expected to widen this year due to rising commodity prices and demand for imports, MUFG Bank Ltd said. and Fitch Solutions.

“We now expect the current account deficit to widen to 4.8 percent of GDP (gross domestic product) in 2022, the largest since 1997,” the MUFG report notes.

The latest available data, which shows that the net energy trade deficit widened to US$7.8 billion between January and April from US$3.3 billion in the same period last year, was cited by Japan’s largest bank to support its view of that the current account will be closed. down by widening the trade gap.

“The main reason for the sharp increase in the trade deficit is the higher cost of oil imports… This means that the current account deficit of the Philippines is likely to be larger than we originally expected,” it added.

The main component of a country’s balance of payments, the current account consists of transactions in goods, services, primary income and secondary income. It measures the net transfer of real resources between the domestic economy and the rest of the world.

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Fitch cites import demand

For its part, Fitch Solutions said it expects the current account balance to remain negative in the coming quarters due to high commodity prices and robust import demand, especially after the government implemented a series of tariff cuts in an attempt to curb price increases. .

For example, it mentions that the government has extended until the end of 2022 a decree that cuts the tariff rate on rice imported outside of Southeast Asia from 40.0 percent to 50.0 percent to 35.0 percent.

He also announced the temporary removal of a 7 percent duty on coal imports, in addition to lowering tariffs on corn and pork.

“Thus, we now expect a current account deficit of 4.3% of GDP in 2022, well above our previous forecast of 2.4%,” the Fitch Group division added.

Bangko Sentral ng Pilipinas estimates that the current account deficit will widen from an earlier forecast of $16.3 billion, or -3.8 percent of GDP, to $19.1 billion, or -4.6 percent of GDP.

This development reflects a projected strong 18 percent increase in merchandise imports, driven mainly by rising global commodity prices along with the continued recovery of the domestic economy, while merchandise export growth is expected to decline to 7 percent due to continued supply constraints. high production costs. and the outlook for weaker global demand, the report said.

On the contrary, both exports and imports of services are expected to grow in double digits, by 11% and 13% respectively, thanks to the economic recovery and the easing of entry restrictions for foreign tourists from February 2022.

In the first quarter of 2022, the current account deficit was $4.8 billion (equal to -5.0 percent of GDP), much larger than the $32 million deficit recorded in the same quarter of 2021.