Wider external gap adds pressure to the peso

From AB Capital's The Opening Bell: Three Moves

Event

The current account deficit (CAD) widened 52% YoY to US$15.44 billion in 1H26, equivalent to 6.4% of gross domestic product (GDP), as higher imports outpaced export growth. The shortfall widened further in 2Q26, reflecting higher energy costs alongside stronger purchases of machinery, telecom equipment and manufacturing inputs.

View

We think the wider CAD is a clear headwind for the peso because it raises the economy's recurring demand for foreign currency. Electronics exports, BPO receipts and remittances remain important offsets, but are not yet large enough to absorb the heavier goods import bill.

Catalyst

If 2H26 simply matches the first half, the full-year CAD would approach US$31 billion. That would keep US$/P under pressure and add to imported inflation through fuel, food and intermediate goods, potentially reinforcing the Bangko Sentral ng Pilipinas (BSP)'s need to keep policy restrictive for longer.

Action

In our view, the key transmission is oil to trade deficit, then peso, then inflation. Lower crude prices would improve the external balance and reduce imported price pressure simultaneously. Until that happens, we would still favor dollar earners and defensives over broad domestic cyclicals.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.