‘Widening current account gap could weigh on peso’

MANILA, Philippines — The country’s trade gap is expected to grow wider in the coming years as the government ramps up infrastructure spending, a trend that may put pressure on the peso even as the economy continues to expand, according to Deutsche Bank Research.

In its latest Asia corporate newsletter, Deutsche Bank flagged the country’s widening current account deficit as large-scale infrastructure projects drive a surge in imports of capital goods like machinery, steel and construction equipment.

“The Philippines’ current account deficit has been widening on the back of improving infrastructure investments, which are, in turn, driving capital goods imports sharply higher,” Deutsche Bank said.

The bank estimates the Philippines’ current account deficit will reach three percent of gross domestic product (GDP) in 2025 and 2.7 percent in 2026, significantly higher than its neighbors in Southeast Asia.

By comparison, Indonesia’s deficit is seen at 0.8 percent this year, while Malaysia and Thailand are expected to post surpluses.

The current account reflects how much a country earns versus how much it spends in dealings with the rest of the world including trade in goods and services, investment income and remittances.

A deficit means the country is importing more than it is exporting and often needs to borrow or attract foreign capital to fill the gap. In the first quarter, the current account deficit doubled to $4.2 billion from the $2.1 billion shortfall a year ago. This is equivalent to -3.7 percent of GDP.

Big-ticket projects like the Metro Manila Subway, North-South Commuter Railway and the New Manila International Airport are already in full swing.

With more developments in the pipeline, the demand for imported materials is likely to remain elevated in the next few years.

While the bank supports these investments for their long-term economic benefits, it warned that the short-term effect could be renewed pressure on the peso, especially as the Bangko Sentral ng Pilipinas is expected to cut interest rates further.

Deutsche Bank expects the BSP’s policy rate to drop to five percent from the current 5.25 percent by the end of 2025 and stay at that level in 2026. A lower interest rate tends to make the peso less attractive to investors seeking higher returns, which could contribute to currency weakness.

The bank also noted that the recent strength of the peso appears to be driven more by investor sentiment than by economic fundamentals. But that may soon change.

“This period (of peso strength) is likely coming to an end,” Deutsche Bank said, citing shifting momentum in global currency markets and new risks such as the US pushing for higher import tariffs.

Still, there’s a silver lining: many of the government’s infrastructure projects are financed through overseas development loans or foreign bond issuances. This means the country’s balance of payments, which tracks how much money is flowing in and out overall, may not deteriorate as much as the current account suggests.

Despite external pressures, Deutsche Bank remains optimistic about the Philippines’ growth prospects. The bank forecasts GDP to grow by 5.7 percent in 2025 and by 6.1 percent in 2026, faster than most of its Asian peers.

Meanwhile, inflation in the Philippines is projected to ease to 1.9 percent in 2025, before picking up slightly to 2.9 percent in 2026.