Economy · July 11, 2022

MUFG, Fitch Solutions sees wider CAD

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

“We now expect the current account deficit to increase to 4.8% of GDP (gross domestic product) in 2022, which will be the largest since 1997,” MUFG noted in a report.

The latest available data, which shows that the net energy trade deficit grew to $ 7.8 billion between January and April from $ 3.3 billion in the same period last year, was cited by Japan’s largest bank a supporting his view that the checking account will be narrowed by a larger trade gap.

“The main reason behind the sharp rise in trade deficits is the higher value of oil imports … This means that the Philippines’ current account deficit is likely to be larger than initially anticipated,” he added.

An important component of the country’s balance of payments, the checking 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 mentions the 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, particularly following the government’s implementation of a series of tariff cuts in an attempt to contain the rise in prices.

For example, he said that an executive order that reduces the tariff rate for rice imported outside of Southeast Asia from 40.0 to 50.0% to 35.0% was renewed by the government until the end of the year. 2022.

It also announced the temporary removal of a 7% tariff on coal imports as well as lower tariffs on corn and pork.

“As such, we now expect the current account deficit to reach 4.3% of GDP in 2022, significantly larger than our previous forecast of 2.4%,” added the Fitch Group unit.

The Bangkok Sentral ng Pilipinas estimates that the current account deficit will increase from the previous forecast of $ 16.3 billion or -3.8 percent of GDP to $ 19.1 billion or -4.6 percent of GDP.

This development reflects the projected sustained growth in imports of goods of 18%, mainly driven by a rise in global commodity prices coupled with the ongoing domestic economic recovery, while growth in exports of goods is expected to moderate to 7% due to persistent supply constraints and high input costs and prospects for weaker global demand, he said.

Conversely, both exports and imports of services are expected to grow in double digits, by 11% and 13% respectively, thanks to the reopening of the economy and the easing of entry restrictions for international tourists starting in February. 2022.

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