Coface Group
Philippines Philippines
Population 97.484 million
GDP 272.207 US$ billion
A4
Country risk assessment
B
Business Climate
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2011 2012 2013(e) 2014(f)
GDP growth (%) 3.6 6.8 6.5 6.5
Inflation (yearly average) (%) 4.7 3.2 2.8 4.5
Budget balance (% GDP) -2.0 -2.3 -1.8 -2.5
Current account balance (% GDP) 3.2 2.9 2.5 2.2
Public debt (% GDP) 42.0 41.9 41.2 39.7

(e) Estimate (f) Forecast

STRENGTHS

  • Economy reputed for its electronics industry (over 40% of exports).
  • Constant growth in exports from the country to emerging Asia: these represented over 50% of exports in 2012.
  • Household consumption and external accounts benefit from expatriate workers’ remittances
  • Thriving business process outsourcing (BPO) sector

WEAKNESSES

  • Low level of investment, especially in infrastructure
  • Governance shortcomings
  • Social inequalities and demographic growth affect economic performance

RISK ASSESSMENT

 

Resilient growth

 In 2013, Philippines’ economy continued to grow at a steady pace, which will continue in 2014. The country’s main growth driver is still household consumption (70% of GDP) and investment, both public and private. This is because strong growth in credit and expatriates’ remittances help sustain domestic demand. As a result, growth in The Philippines suffered less compared to other emerging economies from sluggish demand in the advanced countries. In 2014, the slight recovery in the euro zone and the health state of the American economy will also boost exports, which will benefit the business processing outsourcing (BPO) sector, which represents 25% of exports. Meanwhile, construction, financial intermediation and property will also grow rapidly. However, in November 2013 the country was hit by a powerful typhoon (Haiyan) which ravaged the centre of the country. Although this typhoon will have slightly affected growth in 2013, its negative consequences are likely to be limited in 2014, as the affected region is essentially agricultural (rice and sugar) and represents only 18% of the country’s GDP. Major work will be needed to reconstruct the damaged areas and this infrastructure spending is expected to impact positively on growth in 2014, especially as the country’s public finances are sound and will allow the government to easily finance the works. However, in recent years the Philippines government has often found it difficult to implement major infrastructure projects. Coordinating and deploying the resources needed for reconstruction projects should be a source of growth but it will also represent a challenge for the country, as delivery is still hampered by problems of red tape.

 

Regarding prices, inflation is expected to rise slightly while remaining within the Central Bank’s target bracket (3% - 5%). Nonetheless, the risk of a more marked rise in prices associated with the typhoon’s impact on agricultural production cannot be ruled out, as food represents almost 40% of the prices index. As a reminder, after the Fengshen typhoon in 2008, inflation reached 8%.

 

The country’s financial position remains very solid

The macro-economic fundamentals of The Philippines have improved substantially in recent years. With regard to public finances, the fiscal deficit has been falling constantly. Nonetheless, construction spending will push the deficit up slightly in2014. Inthis context of a weak deficit and sustained GDP growth, public debt is expected to continue falling in 2014.

 

The external financial position also remains favourable. What guarantees the stability of thePhilippines’ external accounts are the transfers by expatriate workers (9.5% ok GDP). These accounts have proved particularly robust during the crisis and the current account balance has posted a structural surplus each year. These transfers are even expected to rise in 2014, as the expatriate members of the families affected by the typhoon will probably increase the volume of funds sent. Exports of services (particularly business process outsourcing) have also been trending upwards in recent years and this will continue in 2014. The Philippines will thus continue to post a current account surplus. In this context, foreign exchange reserves will remain at a very satisfactory level (75 billion as of October 2013).

 

2014, apivotal year for President Aquino

Following his landslide victory in the 2010 presidential elections, Benigno Aquino (Liberal party) strengthened the position of his coalition in the May 2013 mid-term elections. This popularity and the support of the Philippines’ elite point to relative political stability until the next presidential poll in 2016. Nonetheless, the effectiveness of the government’s response to direct reconstruction expenditure to the regions devastated by Typhoon Haiyan is putting the president to the test.

 

During the election campaign of 2010, Aquino won voters over by focusing his campaign on improving governance and its positive impact on the economy. But despite this expressed desire on the part of the president, the country is still suffering from major issues surrounding corruption. Shortcomings also persist in terms of respect for the law and quality of regulation. One of the president’s aims during his time in office is also to reduce poverty and inequalities.

 

President Aquino has achieved a significant political victory regarding internal political stability. In October 2012, the Philippines government reached a peace agreement with the rebel movement that had been calling, for 40 years, for an independent Islamic State on the Island of Mindanao. Nevertheless, violence persists, as evidenced in the terrorist attacks that took place in summer 2013.

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