The current account reversed to a surplus of US$554 million in the third quarter of 2017 from a deficit of US30 million in the same period last year. The current account surplus however, was not adequate to offset the increased net outflows in the financial account, resulting in a deficit in the overall balance of payments position (BOP) in Q3 2017. The country's BOP position reversed to a deficit of US$662 million in Q3 2017, after posting a surplus of US$289 million in the second quarter of the year. This quarter's deficit was also a turnaround from the US$1 billion surplus recorded in Q3 2016. Net outflows in the financial account increased to US$855 million following the reversal of the portfolio investment account to net outflows which more than offset the significant improvement in net inflows of direct investments. Meanwhile, the current account surplus was spurred by the continued growth in exports of goods, BPO-related transactions and travel services, and personal remittances. Global economic conditions continued to pick up pace supported by the sustained expansion in manufacturing activity in the U.S., China, Japan, as well as in the Euro area, and the ASEAN region. As growth prospects remained broadly optimistic, improved external demand for the country's exports of goods and services supported the strong performance of the current account during the quarter.

Third Quarter 2017 Developments

Current Account. The current account registered a surplus of US$554 million in Q3 2017, a reversal from the US$30 million deficit recorded in Q3 2016. This positive outcome resulted mainly from the higher net receipts in the trade-in-services, and primary and secondary income accounts which more than compensated for the widening trade-in-goods deficit.

The trade-in-goods deficit increased to US$9.5 billion in Q3 2017 from US$9 billion in Q3 2016 as imports of goods expanded by US$2 billion while exports of goods rose by US$1.5 billion. Exports of goods expanded by 12.9 percent to US$12.8 billion in Q3 2017 from US$11.3 billion in Q3 2016. Except for petroleum products, all major commodity groups posted increments owing to increased shipments to the country's major trading partners, (i.e., U.S., China, Hong Kong SAR, and South Korea, among others). Exports of manufactured goods which comprised about 78 percent of total goods exports grew by 11.8 percent, due mainly to increased exports of non-consigned electronics (including other electronics) and machinery and transport equipment, which grew by 29.2 percent and 41.8 percent, respectively. Imports of goods amounted to US$22.2 billion in Q3 2017, higher by 9.6 percent than the US$20.3 billion recorded in Q3 2016 on account of the rise in imports of raw materials and intermediate goods (by 11.1 percent) and mineral fuels and lubricants (by 31.1 percent).

Net receipts in trade-in-services amounted to US$2.8 billion in Q3 2017, 33.9 percent higher than the US$2.1 billion net receipts in Q3 2016 due mainly to higher net receipts in other business services (by 24.3 percent) and to lower net payments in travel services (by 5.2 percent). The growth in other business services was boosted by technical, trade-related, and other business services, mostly business process outsourcing (BPO) related transactions. Export revenues in BPO services totaled US$6 billion in Q3 2017, or an increase of 11.1 percent from the US$5.4 billion receipts in Q3 2016. Meanwhile, the reduction in net payments of travel services resulted from the marked increase in travel exports (by 62.9 percent) which outpaced that of travel imports (by 24.3 percent).

The primary income account posted net receipts of US$714 million in Q3 2017, higher than the US$532 million net receipts in Q3 2016. The 34.1 percent increment was due largely to the 6.9 percent growth in compensation inflows from resident overseas Filipino (OF) workers amounting to nearly US$2 billion during the quarter. In addition, net payments of investment income were 4.2 percent lower owing to the reduction in residents' interest payments on foreign portfolio investments, particularly on bonds held by non-residents. Interest receipts on reserve assets which rose by 16.6 percent, also contributed to the upturn in primary income net receipts.

Net receipts in the secondary income account grew by 3.1 percent to reach US$6.6 billion in Q3 2017 compared to the US$6.4 billion net receipts in Q3 2016. The improvement stemmed from the 38.3 percent increment in net receipts of other current transfers (e.g., gifts and donations from financial and non-financial corporations, and non-profit institutions serving households) along with the 2.4 percent growth in personal transfers to US$6.2 billion.

Capital Account. Net receipts in the capital account registered an increment of 29.8 percent to reach US$36 million in Q3 2017 from US$28 million in Q3 2016. The National Government's (NG) receipts of other capital transfers were higher during the quarter.

Financial Account. The financial account yielded net outflows (or net lending of residents to the rest of the world) of US$855 million in the third quarter of 2017 from US$707 million in the comparable quarter last year. The higher net outflows registered in portfolio investments more than offset the increased net inflows recorded in the direct investment account.

Direct investments registered higher net inflows of US$1.9 billion in Q3 2017, nearly threefold the US$638 million net inflows posted in the same quarter last year. This positive development emanated from higher foreign direct investment (FDI) net inflows (or residents' net incurrence of liabilities) coupled with the decline in residents' net acquisition of financial assets. In particular, FDI increased by 35.8 percent to US$2.3 billion. By component, non-residents' net placements of equity capital in local affiliates rose more than fivefold to US$924 million. Gross placements originated mostly from the U.S., Singapore, the Netherlands, Japan and Hong Kong. These placements were channeled mostly to the manufacturing; real estate activities; construction; wholesale and retail trade; and transportation and storage sectors.

The portfolio investment account registered net outflows of US$785 million in Q3 2017, a turnaround from the US$536 million net inflows in Q3 2016. This was due mainly to the net outflows of US$898 million arising from residents' acquisition of financial assets (a reversal from the net inflows of US$100 million or residents' disposal of financial assets) in the same period a year ago, combined with lower net inflows from residents' net incurrence of liabilities (by 74 percent) to reach US$114 million. On the asset side, higher residents' net acquisition of financial assets was on account of the increase in resident banks' placements in foreign-issued debt securities amounting to US$529 million.

The other investment account posted net outflows of US$1.9 billion, nearly matching the net outflows recorded in Q3 2016. This developed as a result of the higher net outflows from residents' net acquisition of financial assets combined with net outflows from their net incurrence of liabilities. Higher net acquisition of financial assets by residents was propelled by increased net placements of currency and deposits abroad by resident banks (US$454 million) and corporates (US$508 million) along with trade credits and advances extended by residents to foreign corporates (US$221 million). Meanwhile, outflows from residents' net incurrence of liabilities reached US$804 million, 39.8 percent lower than the net outflows of US$1.3 billion in Q3 2016. This resulted from net availments by resident corporates' of US$911 million short-term trade credit and advances, which partially tempered the repayment of loans by local banks to non-residents (US$1.4 billion).

January-September 2017 Developments

The BOP position for the first nine months of 2017 yielded a deficit of US$1.4 billion, a turnaround from the US$1.6 billion surplus recorded in the same period in 2016. This development stemmed mainly from the reversal of the financial account to net outflows from net inflows a year ago. The net outflows in the financial account in the first nine months of 2017 was due to higher net outflows in the portfolio and other investment accounts which more than tempered the increased net inflows of direct investments. Meanwhile, the current account reversed to a surplus of US$28 million as a result of higher net receipts recorded in the services, secondary income, and primary income accounts.

Current Account. The current account reversed to a surplus of US$28 million in the first nine months of 2017 from US$454 million deficit in the same period in 2016. The improvement in the current account was attributed mainly to increased net receipts in the trade-in-services, and secondary and primary income accounts which negated the widening of the trade-in-goods deficit.

The trade-in-goods deficit for the first three quarters of 2017 went up by 9.8 percent to US$28.9 billion as imports of goods rose by US$7.7 billion from the previous year's level, compared to the increase in exports of goods of US$5.1 billion. Exports of goods rose by 16.2 percent to US$36.7 billion in the first nine months of 2017 from US$31.6 billion in the same period a year ago. The expansion in exports of goods was due to higher shipments of manufactured goods, which registered a double-digit growth of 14.4 percent to reach US$29.1 billion in the first three quarters of the year. Imports of goods aggregated US$65.6 billion in the first nine months of 2017 from US$58 billion in the same period in 2016. The 13.3 percent upturn was accounted for mainly by higher imports of raw materials and intermediate goods (14.8 percent), and mineral fuels and lubricant (30.8 percent).

Net receipts in the trade-in-services account amounted to US$7.1 billion in the first nine months of 2017, higher than the US$5.5 billion net receipts registered in the comparable period last year. The 29 percent improvement was brought about by higher net receipts in other business services, particularly technical, trade-related, and other business services combined with lower net payments for travel, financial, and government goods and services. Earnings from BPO services in in the first nine months of the year amounted to US$16.9 billion or a growth of 8.5 percent from the same period in 2016.

The primary income account registered net receipts of US$2.3 billion, 24.6 percent higher than the US$1.9 billion net receipts in the first three quarters of 2016. This developed as a result of decreased net payments in investment income (by 7.5 percent) due mainly to higher interest receipts on portfolio investments (by 132.1 percent) and on reserve assets (by 18.4 percent), combined with increased compensation inflows from resident overseas Filipino (OF) workers

(by 3.2 percent).

Net receipts in the secondary income account rose by 5.4 percent to US$19.5 billion, driven by the 3.9 percent increase in remittances of non-resident OF workers. Capital Account. Net receipts in the capital account totaled US$97 million in the first nine months of 2017. This was higher by 23.5 percent than the US$78 million registered in the same period in 2016, attributed mainly to the 33.8 percent increase in other capital transfers to the NG.

Financial Account. The financial account reversed to net outflows (or net lending of residents to the rest of the world) of US$765 million in the first nine months of 2017 from net inflows of US$754 million in the same period last year. This resulted as net acquisition of financial assets of US$4.2 billion more than offset the net incurrence of liabilities of US$3.5 billion.

The direct investment account recorded higher net inflows of US$5 billion in the first nine months of 2017 compared to the US$4.2 billion net inflows in the same period last year. The increase was brought about primarily by lower residents' net acquisition of financial assets, which fell by 50.4 percent, owing to the drop in residents' investments in debt instruments and equity capital abroad. Meanwhile, net inflows of FDI posted a very minimal contraction (0.2 percent) compared to the previous year. Non-residents' net placements of equity capital dropped by 34.1 percent to US$1.1 billion from US$1.6 billion a year ago. The decline in net equity capital inflows more than offset the 13.1 percent upturn in investments in debt instruments issued by local subsidiaries/affiliates (intercompany borrowings) to US$4.2 billion and the 10.4 percent increase in reinvestment of earnings to US$604 million.

Net outflows of portfolio investments expanded by 119.8 percent to US$3.9 billion in the first three quarters of 2017 from US$1.8 billion last year on account of higher net outflows following residents' increased net acquisition of financial assets and repayments on incurred liabilities. On the asset side, residents' net acquisition of financial assets increased by 21.6 percent to almost US$2 billion, the bulk of which consisted of net placements by corporations (US$533 million) in equity securities issued by non-residents. On the liability side, resident's net repayment of liabilities rose substantially to reach US$1.9 billion, mainly due to net redemption of short-term debt securities issued by the NG.

Net outflows of other investments grew by 24.7 percent to nearly US$2 billion in the first nine months of the year from US$1.6 billion in the same period in 2016. Net outflows emanated mainly from residents' net acquisition of financial assets, mainly short-term loans extended by local banks to non-resident borrowers (US$1.2 billion), and trade credits and advances extended by residents to corporates abroad (US$657 million). Net outflows from residents' net incurrence of liabilities were likewise recorded in the form of loan repayments by banks (US$1.1 billion) and corporations (US$1.6 billion).

Gross International Reserves. The country's gross international reserves (GIR) amounted to US$81.0 billion as of end-September 2017, lower than the US$86.1 billion level as of end-September 2016. At this level, reserves could adequately cover 8.2 months' worth of imports of goods and payments of services and income. It was also equivalent to 5.7 times the country's short-term external debt based on original maturity and 4 times based on residual maturity.

Source: Bangko Sentral ng Pilipinas (BSP)