The latest set of forecasts from the Bangko Sentral ng Pilipinas (BSP) points to continued resilience in the country’s overall balance of payments (BOP) position for 2024 and 2025, although at a slower pace compared to the strong performance seen in 2023.
This assessment takes into account a combination of global and domestic factors, including moderating economic growth, easing inflation, and potential shifts in US policies under the new administration.
Global economic growth is expected to slow down in 2024 and stabilize in 2025, driven primarily by advanced economies. While inflation is projected to further decelerate, triggering potential moves towards less restrictive monetary policies by central banks, uncertainties remain. These include lingering geopolitical tensions, limited fiscal space, financial market volatility, and the ongoing threat of climate change.
BSP sees PH achieving lower end of its growth targets
Domestically, the Philippine economy is projected to achieve the lower end of its near-term growth targets. Economic activity will be supported by strengthening domestic demand, fueled by easing inflation, lower oil prices, and the timely enactment of the national budget.
Continued government efforts to improve infrastructure and the overall business environment are also expected to bolster growth and support the external sector.
However, downside risks to the BOP outlook remain significant.
These include volatility in commodity prices due to geopolitical tensions, slower-than-expected growth in China, domestic constraints in the broader use of artificial intelligence (AI), and potential disruptions caused by weather-related events and the emergence of new infectious diseases.
Despite these challenges, the overall BOP position for 2024 is projected to be slightly lower than the 2023 surplus but higher than previous forecasts. This is primarily attributed to upward revisions in portfolio investments and other investments, which offset a projected decline in foreign direct investment (FDI).
BOP outlook for 2024-2025
The current account is expected to post a narrower deficit in 2024 compared to the previous year, but wider than the previous assessment. In September last year, the BSP has predicted that the country’s BOP surplus for 2024 and 2025 would be higher, and that it was time to seize opportunities.
This is largely due to lower growth forecasts for both goods and services exports, coupled with higher projected services imports.
Decelerating revenue inflows from business process outsourcing (BPO) and tourism, partly driven by domestic constraints in AI adoption and the slow return of Chinese tourists, are expected to weigh on services exports.
Merchandise exports are also projected to slow down, following a more pronounced slowdown in the third quarter of 2024, reflecting declines in exports of semiconductor products, copper metal, and bananas.
Softer global demand amid tight monetary conditions, post-pandemic fiscal consolidation, and increased uncertainty stemming from the new US administration’s policies are also expected to dampen export prospects.
BOP for 2025 anticipated to remain in surplus position
For 2025, the overall BOP is anticipated to remain in a surplus position, despite a foreseen widening of the current account.
Sustained net inflows from the financial account will continue to support the BOP outlook.
While there is potential for global trade to pick up in 2025, uncertainties related to potential shifts in US trade, investment, and migration policies will remain a key downside risk.
Given the prospects of continued foreign exchange inflows, the BSP expects further buildup in the country’s gross international reserves (GIR) in 2024-2025.
The BSP emphasized the limitations of these forecasts, particularly given the evolving external challenges. The central bank will continue to closely monitor external sector developments and assess their potential impact on the BSP’s price and financial stability objectives.