Coface Group
Philippines

Philippines

Population 99.434 million
GDP 286.686 US$ billion
A4
Country risk assessment
B
Business Climate
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Synthesis

major macro economic indicators

  2012 2013 2014  2015(e)
GDP growth (%) 6,8 7,2 6,1 6,0
Inflation (yearly average) (%) 3,2 2,9 4,2 2,1
Budget balance (% GDP)* -2,3 -1,4 -0,6 -1,8
Current account balance (% GDP) 2,8 4,2 4,4 4,5
Public debt (% GDP) 40,6 39,1 37,2 35,5

(e) : estimate        (f) : forecast

STRENGTHS

  • Economy reputed for its electronic industry (more than 40% of exports).
  • Constant growth in exports to emerging Asia: these represented over 50% of exports in 2012.
  • 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

Stabilisation of growth in 2015

In 2014, growth suffered from a fall in public expenditure. In fact, the Supreme Court invalidated a part of the stimulus plan launched in 2011 by President Aquino, forcing him to suspend a great deal of expenditure. Although the parliament voted for new financing solutions and the Aquino government is seeking to develop the infrastructure, the country could continue to suffer, in 2015, from a lack of public expenditure and difficulties in budget implementation. Nevertheless, the approaching presidential elections in May 2016, and an increase in public expenditure should buoy economic activity.

In 2015, the country's main growth driver should continue to be the household consumption (70% of GDP). Domestic demand should be boosted by the strong growth in credit and the constant rise in workers' remittances, whereas inflation should fall, food prices increased following Typhoon Haiyan and have stabilised since then. Furthermore, the fall in the price of oil should also ensure inflation is stabilised.

Furthermore, exports of electronic products should remain buoyed and should continue to benefit from the boom in sales of smartphones. The business process outsourcing (BPO) sector, which represents 25% of exports, should also remain dynamic.

The construction sector should experience rapid growth, buoyed by the development of infrastructure and urbanization. Nevertheless, the country could continue to suffer from a lack of infrastructure, particularly electric, which could impact economic activity.

 

The financial situation of the country remains very sound

The macroeconomic fundamentals of the Philippines have strongly improved over the last few years. Even though the budget deficit should rise in 2015, due to the increase in expenses allocated for reconstruction and development of infrastructure and the tax exemptions in some sectors, public debt should continue to fall.

On the external accounts side, the Philippines should continue to register a current account surplus in 2015. Workers' remittances (official remittances represent close to 10% of GDP) have been particularly robust during the crisis and this trend should continue, with Filipino workers being present throughout the world and in different types of jobs.

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, foreign exchange reserves should remain at a comfortable high level (more than 10 months of imports in 2015).

 

Beginnings of the 2016 presidential campaign

The mid-term elections of May 2013 have enabled the President, Benigno Aquino (Liberal Party) to reinforce his coalition. As the constitution does not allow him to stand for a second term in 2016, uncertainty surrounds his succession. 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.

Lastly, President Aquino won a victory concerning homeland security. A peace agreement was made in October 2012 with the armed rebellion movement which has, over the last 40 years, fought for the creation of an independent Islamic state on the island of Mindanao. This was then confirmed in August 2014 by an agreement on the law that will govern the autonomy of this region. Nevertheless, the approval of the law by the Parliament has been pushed back, with the Senate having rejected the first draft of the legislation. Furthermore, the popularity of the peace agreement has fallen following a deadly confrontation between a police commando and the guerrillas in Mamasapano in January 2015.

 

(Last update : August 2015 ) 

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