A report released on Monday by ANZ Research has forecasted that the Philippines’ current account deficit (CAD) will widen to 2.9% of gross domestic product (GDP) in 2025, up from the Bangko Sentral ng Pilipinas’ (BSP) projection of 1.5% for this year. The first half of 2024 already saw the CAD ballooning to $7.1 billion, accounting for 3.2% of GDP.
The widening CAD reflects a mix of infrastructure-focused government spending and lackluster export performance. While ANZ Research emphasized that a persistent CAD is not inherently detrimental at this stage of the Philippines’ economic development, the implications for the peso and trade competitiveness have raised concerns.
“The CAD is crucial for sustaining high levels of investment due to the country’s low domestic savings rate,” ANZ said. However, a wider deficit has exerted consistent depreciation pressure on the peso, which closed at ₱58.99 against the dollar on Monday, edging closer to the ₱59-per-dollar mark last seen in October 2022.
Export Weakness and Trade Imbalance Under Scrutiny
The Philippines’ trade deficit reached a 20-month high in September at $5.09 billion, a 43.4% year-on-year increase, according to the Philippine Statistics Authority (PSA). Exports dropped by 7.6% to $6.26 billion in the same period, marking the steepest decline since June 2024. ANZ Research attributed this stagnation to declining competitiveness in the tradable goods sector.
The electronics sector, which constitutes 55% of the nation’s total exports, faced severe setbacks. Electronic product exports fell 23.1% in September, with semiconductor shipments plunging by 30.6% to $2.31 billion. The report cited limited productivity gains and the sector’s focus on low-value-added activities, such as assembly and packaging, as primary challenges.
Additionally, ANZ highlighted a growing divergence between domestic demand and export performance. “Imports have risen sharply, driven by increased infrastructure spending and anticipated rate cuts by the BSP,” the report noted. September imports rose 9.9% to $11.34 billion, largely due to capital goods essential for government infrastructure projects.
Peso Weakens Amid Depreciation Pressures
The peso’s recent struggles underscore the broader economic challenges tied to the CAD. ANZ warned that the peso is likely to face sustained depreciation pressures as the government continues to prioritize infrastructure spending, coupled with a reduction in the BSP’s policy rate.
“Strong remittances and moderate service export growth provide some support to the current account balance,” the report stated. However, these inflows are insufficient to offset the growing trade deficit and stagnant export growth.
Outlook Remains Uncertain
While ANZ recognized the need for a wider CAD to complement low domestic savings, it warned that continued reliance on imports and stagnant export growth could hinder long-term sustainability. Policymakers must address declining competitiveness and inefficiencies in key sectors, particularly electronics, to rebalance trade dynamics and reduce the peso’s vulnerability.
Jaja has a degree in journalism and took classes in international law and business communication. Her career spans roles at prominent international media outlets, including International Business Times, Celebeat and Delightful Philippines. As a news editor, Jaja covered a wide range of beats, including legal, business, economy, cryptocurrency, personal finance, gaming, technology, and entertainment.