Nomura still optimistic on PHL’s ‘16 BOP position

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MANILA – Japanese financial holding company Nomura Group discounts any big drop in the Philippines’ current account surplus this 2016 amidst the volatility in the global economy.

In a research note, Nomura said the challenging developments globally, due in part to the slowdown in China and impact of interest rate normalization in the US, increased the pressure on the country’s balance of payment (BOP) position, which is the summary of a country’s total transactions with the rest of the world, and the peso.

One of those hit by these developments is the expansion of inflows from Filipinos overseas, which registered a slower year-on-year growth in 2015.

Cash remittances went up by 4.6 percent to USD25.8 billion in 2015, slower than the 7.2 percent in 2014.

The Bangko Sentral ng Pilipinas (BSP) remittance growth assumption for this year is four percent, lower than year-ago’s five percent given the slowdown in 2015 due partly to more stringent bank rules overseas.

Nomura said challenging external developments have resulted to capital withdrawals from the Philippines.

“With our US economics team’s forecast of two more interest rate hikes from the Fed in 2016 and our below-consensus forecast for China’s growth, the risk is that subdued risk appetite may continue to pressure the Philippines’ BOP via capital outflows,” it said.

Central bank data show that as of end-September 2015, the country’s current account posted a surplus of USD658 million, which accounts for one percent of gross domestic product (GDP).

It is 77.5 percent lower than the USD2.9 billion same period in 2014, which is about 4.2 percent of domestic output.

The research note said the country “appears to be a victim of its own success: strong investment spending has kept capital goods imports elevated while higher tourism imports (Filipinos travelling overseas) have increased, possibly due to higher per-capita income.”

It, on the other hand, said the strong growth prospect for the domestic economy is countered by outflows of foreign direct investments.

It pointed out that structural factors such as diversification of areas of deployment for Overseas Filipino Workers (OFWs) and higher number of skilled OFWs are present and these are seen to offset risks such as lower growth of remittances.

“Overall we continue to forecast a current account surplus of around 3.7 percent of GDP in 2016 from 4.0 percent in 2015, and expect OFW remittances to grow by 5.2 percent year-on-year in 2016 from 3.5 percent in 2015,” the research note said.

On the local currency, the study projects the peso to remain vulnerable “if capital outflows continue at its pace from over the past 12 months” but Nomura remains optimistic on the local unit.