Coface Group
Philippines

Philippines

Population 99.4 million
GDP per capita 2,862 US$
A4
Country risk assessment
B
Business Climate
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Synthesis

major macro economic indicators

  2013 2014  2015(f) 2016(f)
GDP growth (%) 7,1 6,1 6,0 6,0
Inflation (yearly average) (%) 2,9 4,2 1,9 3,4
Budget balance (% GDP)* 0,2 0,9 -0,1 -0,6
Current account balance (% GDP) 4,2 4,4 4,4 4,0
Public debt (% GDP) 39,2 36,4 35,9 33,9

(e) Estimate (f) Forecast

STRENGTHS

  • Economy reputed for its electronic industry (more than 40% of exports).
  • The proportion of the country’s exports to other emerging Asian economies is constantly growing. 
  • Household consumption and external accounts are benefiting from expatriate’s workers remittances.
  • Thriving business process outsourcing (BPO) sector

WEAKNESSES

  • Low level of investment, particularly in infrastructure.
  • Governance shortcomings
  • Inequalities and strong demographic growth are impacting economic performances.

RISK ASSESSMENT

Growth should remain strong

The economy in 2016, should remain vigorous, with household consumption still the main driving force (70% of GDP). This will continue to benefit from substantial remittances from abroad, the rapid expansion of credit and lower energy prices, helping to sustain purchasing power. Inflation, despite a slight upturn, should remain reasonable and within the central bank target range (2%-4%).

Although China is the 3rd largest buyer of Philippine exports, the country is likely to be relatively unaffected by the slowing Chinese economy. Exports of electronic goods should remain strong, benefiting from booming smartphone sales. The business process outsourcing (BPO) sector, which represents 25% of exports, should also remain dynamic.

In addition, despite the government experiencing problems in budgetary execution and with public spending below the forecasts for 2015, these are set to pick-up as the May 2016 Presidential elections approach. The Public Private Partnership programme initiated by President Aquino is also starting to bear fruit and should help boost infrastructure improvements.  Investors nevertheless remain cautious, as the outcome of the 2016 Presidential elections are not clear, especially as the country will still be suffering from infrastructure inadequacies, in particular for electricity. The construction sector should therefore see rapid growth.

 

The financial situation of the country remains very sound

The macroeconomic fundamentals of the Philippine economy have improved significantly over recent years. Although the budget balance is likely to deteriorate in 2016, following increased spending for the reconstruction and development of infrastructures as well as tax exemptions allocated to certain sectors, the public debt should continue to shrink.

In terms of its external accounts, the Philippines should maintain its current account surplus in 2016. Remittances from its expatriates (accounting for more than 7% of GDP in 2015) have proven particularly resilient during the crisis and this trend should continue, as Philippine expatriates are present in many of the world’s regions and occupy a wide range of jobs.

Néanmoins, la balance commerciale devrait se dégrader en raison de la progression rapide des importations stimulées à la fois par la consommation des ménages et les besoins d’intrants pour l’industrie. Les  exportations de services (notamment les  externalisations des services d’entreprises) connaissent une tendance haussière ces dernières années.

Nevertheless, the trade balance should worsen due to the rapid rise in imports stimulated both by household consumption and the input needs for industry. Exports of services (particularly the outsourcing of company services) have experienced an upward trend over the past few years. In this context, its currency reserves should remain at a very comfortable level (more than 10 months of imports in 2016).

 

Presidential elections in 2016

Elected in 2010, its President, Benigno Aquino (Liberal Party) cannot stand again, as the Constitution does not allow a second term of office. His succession is the cause of uncertainties. The popularity of the President and his party has fallen following Typhoon Haiyan, with the effectiveness of the government's reaction having been under scrutiny. Furthermore, the President had to face impeachment proceedings in September 2014. Jejomar Binay, Vice-President and head of the opposition, is the favourite for the 2016 elections but his progress could be halted due to suspected corruption. Whereas the campaign would have required him to resign only in October 2015, he left the government at the end of June to dedicate himself to the campaign. Manuel Roxas, Secretary of State for Internal Affairs and failed candidate for the Vice Presidency in 2010, is seen to be candidate for the Liberal Party, but he suffers from lack of popularity.  

In spite of ambitious targets to improve governance set by President Aquino, the country still suffers from major shortcomings concerning corruption (the country is ranked at 119th out of 215 by the World Bank). Shortcomings also persist concerning respect for the rule of law and the quality of regulations.

President Aquino has however won a victory in terms of homeland security. A peace agreement was negotiated, in October 2012, with the armed rebel group that has been demanding the creation of an independent Islamic State on the Island of Mindanao for the last 40 years. This was subsequently confirmed in August 2014 with an agreement on the framework law concerning autonomy for this region. In October 2015, this peace agreement received the support of 18 Ambassadors and was scrutinised by the Supreme Court. The popular approval of the peace agreement was however weakened following a fatal incident between police and guerrillas on the island of Mamsapano in January 2015.

Finally, tensions remain high in the territorial dispute between the Philippines and China. This disagreement is scheduled for consideration by an international Tribunal.

 

Last update : January 2016

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