Wednesday, July 9, 2025

Current account deficit doubles to $4.2B in Q1 from yr-earlier

‘Import spending grew faster than export earnings” — BSP

THE Philippines’ current account deficit doubled to $4.2 billion in the first quarter of 2025—equivalent to a larger share of gross domestic product (GDP)–from $2.1 billion a year earlier, the Bangko Sentral ng Pilipinas (BSP) said in its latest report.

Compared with the quarter earlier, however, the current account deficit in the January to March 2025 period was smaller by 8.7 percent than the $4.6 billion deficit in October-December 2024 quarter.

Current account tracks the flow of goods, services, income, and financial transfers between the Philippines and the rest of the world.

Deficit as a share of GDP

In a statement just before the weekend, the BSP said as a share of GDP, the latest deficit increased to 3.7 percent in the first quarter of this year from 1.9 percent in the first quarter of 2024 .

“This development reflected the widening merchandise trade gap, as import spending grew faster than export earnings,” BSP said.

The BSP said the widening of the current-account deficit also resulted from the “contraction of net revenues from trade in services due to lower transport services receipts and increased outbound travel spending.”

However, this was moderated by higher remittances from overseas Filipino

workers, the BSP said.

The BSP had projected the current account deficit would further widen to $19.8 billion this year.

Last year, the deficit reached $17.5 billion, $5 billion more than the $12.4 billion deficit in 2023. 

Rising imports

John Paolo Rivera, senior research fellow at the Philippine Institute for Development Studies, said the widening current account deficit reflects persistent imbalances in the country’s external sector.

“This was largely driven by a continued rise in imports, particularly capital and intermediate goods which outpaced modest export growth. The recovery in domestic demand and infrastructure spending also contributed to higher import bills,” Rivera said in a Viber message to Malaya Business Insight.

He said that while a current account deficit is not inherently negative, especially if it supports productive investment, sustained widening can pressure the peso, add to external financing needs, and affect investor sentiment.

“Addressing structural export competitiveness, diversifying markets, and boosting foreign direct investments will be key to improving the current account balance,” Rivera said.

Meanwhile, Michael Ricafort, RCBC’s chief economist, said the gaping deficit “largely reflects the wider trade net imports amid US President Donald Trump’s higher tariffs and trade wars that could slow down global trade, investments, employment, and overall world GDP growth.”

“The Philippines is also a net importing country, as reflected in the current account, though offset by continued growth in OFW remittances, albeit slower in recent months, BPO revenues, foreign tourism receipts, and some modest growth in exports in recent months,” Ricafort said in a Viber message.

He said the Israel-Iran war is a source of uncertainty in terms of volatility in global crude oil prices.

“The Philippines imports almost all of its oil.  (The war) could make oil and other energy commodities more expensive and could widen the trade deficit of the country,” Ricafort said.

BOP deficit

The BSP said the current account deficit in the first quarter caused the country’s balance of payments (BOP) to also register a deficit in the first quarter.

“The BOP deficit of $3.0 billion in the first quarter 2025 was a reversal of the $238 million surplus recorded during the same period last year,” BSP said.

BOP accounts for the transactions of the country with the rest of the world.

“This was primarily driven by a wider deficit in the current account component.  The (BOP) deficit was partly offset by substantial inflows in the financial account,” the central bank added.

The financial account posted net inflows of $6.7 billion in the first quarter of 2025, up by 43.2 percent from $4.6 billion in the same period last year.

The financial account is composed of direct investments, which are usually long-term in nature; portfolio investments, such as placements in stocks and bonds; and other forms of investment.

The capital account recorded a surplus of $23 million in the first quarter of 2025, up by 35.9 percent from $17 million in the same period last year.

The BSP said the surplus was driven by gross disposals of non-produced non-financial assets amounting to $4 million, compared with $1 million gross acquisitions in the first quarter of 2024.

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