MAJOR MACRO ECONOMIC INDICATORS
|GDP growth (%)||7.6||3.9||6,6||6,5|
|Inflation (yearly average) (%)||3.8||4.7||3.1||2.8|
|Budget balance (% GDP)||-3.5||-2||-2,3||-1,9|
|Current account balance (% GDP)||4,5||3.3||3.8||3.5|
|Public debt (% GDP)||42.2||40.5||40.1||38.7|
(e) Estimate (f) Forecast
- Significant role played by the electronic sector in the economy (over 40% of exports)
- Constant growth in its exports to emerging Asian economies: accounting for over 45% of exports in 2011
- Household consumption and the external accounts benefit from remittances by expatriate workers.
- The business process outsourcing (BPO) sector is thriving
- Low level of investment, especially in infrastructure
- Governance shortcomings
- Social inequalities and demographic growth affect economic performance
Growth driven by household consumption
The Philippines achieved sustained growth of 6.6% in 2012, despite weak demand in Europe and the United States. The main driving force for this remained household consumption, accounting for 70% of GDP, and public and private investments. Household consumption will continue at a sustained level under the effects of the rapid expansion in credit as well as remittances from expatriate workers (over 7% of GDP). In terms of supply, the business process outsourcing (BPO) sector has seen very strong growth over the last ten years. This now accounts for approximately 5% of GDP and 25% of exports. The call centre sub-sector here now employs more people than it does in India, which until 2011 was the reference country in this regard. It should also be noted that the construction, financial intermediation and property sectors are experiencing rapid growth.
In the short term, the main risk to activity is a slowdown in global growth as exports represents almost 50% of GDP. The Philippines are especially exposed to the trade channel with over 40% of its exports coming from the electronics sector whose business cycle is very closely linked to that of the advanced economies. In addition the increasing levels of unemployment in those countries to which expatriate Philippine workers have traditionally gone will also impact on household consumption. On top of this, despite progress in terms of investments, notably in infrastructure (with the government setting up 80 public-private partnership based investment projects worth a total of 7.5% of GDP), growth continues to be held back by the poor rate of investment, with the implementation of public investment projects seriously slowed by bureaucratic obstacles.
Inflation is likely to remain under control in 2013. In 2012 the inflation rate is 3.1% as an annual average, with the Central Bank’s target range being between 3 and 5%. The consumer price index benefited from a drop in world agricultural prices during the first half. With food prices representing over 50% of the index (of which rice accounts for 10% of the total) inflation is highly dependent on movements in the price of foodstuffs. In this context of weak inflationary pressure and in order to curb the appreciation of the peso, the Central Bank moved to cut rates several times during 2012, so much so that rates are now at historic low. This is one of the factors behind the strong growth in the private sector credit.
The country’s financial position remains very solid
Regarding public sector finances, the fiscal deficit in 2012 was 2.3% of GDP and should remain at a moderate level in 2013. Against the backdrop of a small deficit and sustained GDP growth, the sovereign risk has fallen and public debt is expected to continue downwards this year.
The external financial position also remains favourable. It is the remittances from expatriate workers that ensure the strong stability of the Philippines’ external accounts. These have proven to be extremely resilient throughout the crisis and helped produce a current account surplus of 3% each year. Exports of services have also been on an upward trend over recent years and this will continue in 2013. The Philippines will therefore continue to record a current account surplus. Given this context, the peso will continue to appreciate at a moderate rate in 2013. Alongside the appreciation of the peso, there has also been a growth in the country’s currency reserves, these increased by 8.5 Bn USD in 2012 to reach 84 Bn USD (33.5% of GDP).
Political stability in 2013
Benigno Aquino’s (Liberal Party) landslide presidential election victory in 2012 was not hugely contested. This initial popularity and the support of the Philippines elites bode well for relative political stability until the next presidential election in 2016. In addition, the partial results of the mid-term elections, held in May 2013, gave support to the coalition under President Aquino.
During his election campaign in 2010, B. Aquino gained voters confidence by focussing his campaign on achieving better governance and its positive impact on the economy. However, despite this stated desire on the part of the President, corruption persists in the country. There are continuing shortcomings both in terms of compliance with the law and the quality of regulations. One of the President’s stated objectives for the year also covers a reduction in poverty and inequality.
Recent improvements can however be seen in terms of internal political stability. In October 2012, the Philippine government reached a peace agreement with the rebel movement that had been calling, for 40 years, for the creation of an independent Islamic state on the island of Mindanao. In geopolitical terms, its relations with China were tense in 2012, with this increased tension arising from territorial conflicts in the mid China Sea. In May 2013 its relations with Taiwan also deteriorated following the death of a Taiwanese fisherman killed by the Philippines Coastguard.