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Philippines' current account deficit widens to record $7.9 billion in 2018

    Mar 15, 2019 2:52 AM  PT

MANILA (Reuters) - The Philippines posted its largest current account deficit on record last year, driven mainly by increases in imports which were meant to support economic activity, the central bank said on Friday.

The central bank said the current account deficit, which measures the flow of goods, services and investments into and out of the country, reached an all-time high of $7.9 billion, equal to 2.4 percent of national economic output in 2018.

Last year's current account gap, due to an import-driven trade deficit, was also wider than the central bank's projection of a $6.4 billion deficit or 1.9 percent of gross domestic product (GDP)

The deficit in 2017 was $2.1 billion, or 0.7 percent of GDP.

Robust purchases of capital and consumer goods and a weak demand for the country's exports pushed the trade gap in 2018 to a whopping $41.44 billion, up sharply from the previous year's $27.4 billion deficit.

With the Philippine government expected to import more infrastructure-related goods for its massive "Build, Build, Build" programme, the trade deficit is expected to remain a challenge for the economy.

But the central bank has a more optimistic take.

"Current account dynamics reflect efforts to support expansion of the country’s potential production capacity", the central bank said.

The Philippines shifted away from low interest rate settings last year to battle inflation and help prevent capital flight as investors sought higher yielding assets.

But with inflation moderating, Philippine policymakers would likely loosen their grip on tight monetary policy this year to support the economy forecast to grow less than expected this year.

The Philippine economy grew 6.2 percent in 2018, below the government's downwardly revised target of 6.5-6.9 percent, but still one of Asia's fastest rates. It is projected to grow between 6-7 percent this year.

(Reporting by Karen Lema; Editing by Kim Coghill)