Offsetting slower remittance growth.
It has been noted that 2016 is likely to be a year of changing current account (C/A) drivers for the Philippines.
According to a research note from Standard Chartered, it expects the information-technology business process outsourcing (BPO) sector to be the biggest contributor to C/A inflows from 2017.
Remittance growth is slowing as the number of outgoing overseas workers stabilises and overseas income is impacted by a sluggish world economy and strong USD. However, remittances should continue to add more than 6ppt to the C/A surplus (percentage of GDP) in the next four years.
Even during this transitional period, we expect BPO services exports, remittances and electronics exports to support the C/A surplus, accounting for more than USD 67bn of inflows (21% of GDP) this year.
Here's more from Standard Chartered:
We expect the C/A surplus to reach a low this year before rebounding in subsequent years. It narrowed for four consecutive years until 2015 on a strong domestic economy, compared with external demand.
We expect growth in goods and services imports, particularly energy imports, to remain strong this year as prices stabilise. However, the gap between import and export growth should shrink by next year. The C/A surplus is set to remain broadly supported by exports and remittances from overseas workers – we project a surplus of 2.5% of GDP in 2016 and 3% in 2017.
Modern services like BPO typically use less imported input; currency depreciation should, therefore, boost cost competitiveness to a much larger degree. We expect the central bank to aim to maintain a stable Philippine peso (PHP) REER and limit the extent of overvaluation, given the increasing relative importance of services exports.
A narrowing C/A surplus is also likely to limit further gains in the PHP REER. More positively, diversification in the sources of C/A inflows reduces the PHP’s vulnerability to isolated shocks quite significantly.
Do you know more about this story? Contact us anonymously through this link.