Current account deficit seen widening further

Amid global trade woes

MANILA, Philippines — The Philippines’ external position is expected to weaken further in the coming years, as global trade headwinds continue to pressure exports, services and remittances, according to Fitch Solutions unit BMI Country Risk and Industry Research.

In a commentary, BMI said the Philippines’ current account deficit is likely to remain elevated over the medium-term, averaging 2.8 percent of gross domestic product (GDP) in the next three years.

This is a sharp reversal of the pre-pandemic average deficit of just 0.4 percent of GDP from 2015 to 2019.

“The Philippine external sector is set to come under pressure over the medium-term as global trade headwinds mount. Consequently, we are forecasting wider current account deficits over the medium-term compared to its historical average,” BMI said.

“We now expect the Philippines’ external position to deteriorate as trade fragmentation and its knock-on effects on global demand will weigh heavily on exports,” it added.

Latest Bangko Sentral ng Pilipinas (BSP) data showed the current account gap already widened to 3.7 percent of GDP in the first quarter from 1.9 percent in the same period last year.

BMI cited slowing growth in the Philippines’ two biggest trading partners, the United States and China, as a major drag.

US growth is forecast to cool to 1.7 percent this year from 2.8 percent last year amid high interest rates and policy uncertainty, while China continues to struggle with a prolonged property downturn that will cut growth to 4.8 percent this year and 4.2 percent in 2026.

The research firm also flagged rising US tariffs under the Trump administration, which it said would worsen global trade fragmentation and weigh heavily on export demand worldwide.

Apart from goods, the services sector is unlikely to provide much cushion. The Philippines holds a 15-percent share of the global outsourcing market, but BMI noted that the industry remains vulnerable to weaker global services demand.

Remittances from overseas Filipino workers, another key dollar earner, are also projected to moderate in line with slower growth in major host economies such as the US, Singapore, Saudi Arabia, Japan and the United Kingdom.

BMI projects the country’s trade deficit in goods to hit $74.3 billion this year and expand steadily to $90.5 billion by 2028.

While trade in services and secondary income inflows will partly offset the gap, the current account deficit is expected to hover at around 3 percent of GDP until 2026 before easing gradually.

BSP Deputy Governor Zeno Abenoja told lawmakers during the House budget deliberations that sustained foreign exchange inflows and the country’s ample reserve position provide a strong buffer against external shocks.

Abenoja noted that while the trade in goods sector continues to post deficits, these are partly offset by inflows from services and primary income.

“We have adequate buffers that will help us manage external headwinds,” Abenoja said in his presentation.

The BSP expects current account shortfall for 2025 to narrow to $16.3 billion (-3.3 percent of GDP) from $17.5 billion (-3.8 percent of GDP) in 2024.