ECONOMY, FINANCE AND

TRADE: PHILIPPINES
Euromonitor International
May 2017
ECONOMY, FINANCE AND TRADE: PHILIPPINES Passport I

LIST OF CONTENTS AND TABLES

SWOT analysis............................................................................................................................. 1
Chart 1 SWOT Analysis: The Philippines .................................................................. 1
Chart 2 Economic Overview: The Philippines ........................................................... 1
Economic Landscape ................................................................................................................... 2
the Philippines was the 11th Fastest-growing Economy Globally in 2016 ................................ 2
Chart 3 Case Study on Economic Landscape: The Philippines ................................ 3
Chart 4 Economic Landscape of the Philippines ....................................................... 3
Monetary Indicators ...................................................................................................................... 4
Annual Inflation Is Expected To Rise Going Forward ............................................................... 4
Chart 5 Monetary Indicators in the Philippines .......................................................... 5
Imports ......................................................................................................................................... 5
Imports Will Continue To Rise, Given High Economic Activity .................................................. 5
Chart 6 Import Profile of the Philippines .................................................................... 6
Exports ......................................................................................................................................... 6
Exports Are Expected To Recover in 2017 ............................................................................... 6
Chart 7 Export Profile of the Philippines ................................................................... 7
Investments .................................................................................................................................. 8
Lags Behind Its Regional Peers in Terms of FDI Inflows .......................................................... 8
Chart 8 Case Study on Investment: The Philippines ................................................. 8
Chart 9 Investment Profile of the Philippines ............................................................ 8
Government Finance .................................................................................................................... 9
Large Infrastructural Spending Could Worsen the Budget Deficit ............................................. 9
Chart 10 Government Finances in the Philippines ...................................................... 9
Regional Comparison ................................................................................................................. 10
Chart 11 The Philippines vs. Asia Pacific and Selected Economies ......................... 10

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ECONOMY, FINANCE AND TRADE:

PHILIPPINES
The Philippines continues to be one of the fastest-growing economies in Asia Pacific in 2016.
Robust domestic demand and large infrastructural spending are expected to continue to support
economic growth going forward. A youthful workforce, an expanding middle class, and a
lucrative semiconductor and electrical sector attract foreign investors to the economy. However,
poor infrastructure and a high dependence on Asia Pacific for its export demand remain major
drags on the economy.

SWOT ANALYSIS
Chart 1 SWOT Analysis: The Philippines

Source: Euromonitor International

Chart 2 Economic Overview: The Philippines

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ECONOMY, FINANCE AND TRADE: PHILIPPINES Passport 2

Source: Euromonitor International from national statistics/IMF/OECD/UN/World Bank/International Energy

Association (IEA)/World Economic Outlook (WEO)/International Labour Organisation (ILO)
Note: Data for 2017 to 2020 are forecasts

ECONOMIC LANDSCAPE

the Philippines was the 11th Fastest-growing Economy Globally in 2016

The Philippines economic outlook is bright, backed by strong domestic demand:
The surge in domestic demand was driven by growth in consumption levels and investment,
causing annual real GDP to accelerate to 6.8% in 2016;

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The Philippines has a relatively well-diversified economy. Its services sector benefits from the
strong presence of foreign banks and a booming business process outsourcing (BPO)
industry. Meanwhile, its manufacturing sector remains competitive, due to cheaper labour
than in China and increased foreign investment in the sector, as the government sought to
revive the sector through its new industrial policy;
The economy is expected to grow at a solid pace of 6.5% in 2017, thanks to robust gains in
private final consumption and large spending on infrastructural projects. A prolonged
slowdown in Japan and China represents a drag. High poverty levels and an inadequate
infrastructure are other major challenges facing the country.

Chart 3 Case Study on Economic Landscape: The Philippines

Source: Euromonitor International

Chart 4 Economic Landscape of the Philippines

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Source: Euromonitor International from national statistics/OECD/UN/IMF (WEO)

Notes: (1) Wholesale & Retail Trade includes Repair of Motor Vehicles, Motorcycles and Personal and
Household Goods.
(2) Financial Intermediation includes Real Estate, Renting and Business Activities.
(3) Public Administration includes Defence and Compulsory Social Security.
(4) Education, Health & Social Work includes Other Community, Social & Personal Service Activities.
(5) Data for 2017 is forecast

MONETARY INDICATORS

Annual Inflation Is Expected To Rise Going Forward

The Bangko Sentral ng Pilipinas (BSP) continues to keep interest rates low, amidst low
inflation:
After reaching the lowest level of 1.4% in 2015, in nearly three decades, annual inflation rose
to 1.8% in 2016. This rise can be attributed to a surge in both food and non-food products, as
well as the recovery in oil prices. Healthy levels of domestic demand and higher utility prices
should help keep inflation levels relatively higher;
The long-term interest rate has been rising since 2013, indicative of a positive economic
outlook. The overnight interbank rate stood low and was left unchanged at 2.5% in 2016,
facilitating lending to businesses. Money supply also surged over 2011-2016, as low levels of
interest rates stimulated credit growth;

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The Philippine peso (PHP) is a free-floating currency. The PHP depreciated sharply against
the US$ in 2016, owing to the uncertainty surrounding over the USAs trade and investment
policies and risky remarks made by President Duterte against the USA in October 2016,
hampering investor sentiments.

Chart 5 Monetary Indicators in the Philippines

Source: Euromonitor International from national statistics/OECD/UN/IMF

Notes: Data for 2017 is forecast

IMPORTS

Imports Will Continue To Rise, Given High Economic Activity

Total goods imports surged by 34.4% in US$ terms over 2011-2016, partly owing to high
levels of economic activity and rapid growth in the countrys middle-class households:
Nearly two fifths of the Philippines total goods imports were Machinery and Electrical in
2016, indicating a large manufacturing sector, leaving it vulnerable to fluctuations in
commodity prices. More than two thirds of its total goods imports came from Asia Pacific
(mainly China) in 2016, exposing it to regional supply shocks;
Despite low levels of energy consumption, the Philippines are reliant on the import of mineral
fuels to meet their energy demands. The mineral products imports bill accounted for 12.7% of

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the Philippines total goods imports in 2016, making it fairly vulnerable to the recovery of oil
prices since February 2016;
In April 2016, the Philippines signed a free trade agreement (FTA) with the European Free
Trade Association (EFTA), giving the country access to one of the richest consumer markets
globally. In March 2017, China and the Philippines signed the Six-Year Development Program
(SYDP), which aims to encourage greater trade, as well as economic alliance, between the
two nations.

Chart 6 Import Profile of the Philippines

Source: Euromonitor International from IMF, Direction of Trade Statistics

EXPORTS

Exports Are Expected To Recover in 2017

The total goods exports contracted for the second consecutive year by 4.8% annually in 2016,
due to weaker demand from its major trading partners (mainly China) and a relatively stronger
currency:

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The Philippiness large semiconductors and electronics sector focuses on making, gathering,
testing, packaging and distributing products, making Machinery and Electrical its largest
export category in 2016. A hefty reliance on this export category leaves the country exposed
to demand variations from its trade partners, as well as regional demand and supply shocks,
as its export and import destinations are not well diversified;
The economys reliance on remittance inflows stood high at 9.6% of GDP in 2016. However,
despite growing remittance inflows and improving income balances, a higher trade deficit (due
to lower exports and higher imports) caused the current account surplus to decline to an
eight-year low of 0.2% of GDP in 2016.

Chart 7 Export Profile of the Philippines

Source: Euromonitor International from national statistics/OECD/IMF/IFS/WEO/Direction of Trade Statistics

Note: Data for 2017 is forecast

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INVESTMENTS

Lags Behind Its Regional Peers in Terms of FDI Inflows

After reaching a record high level in 2014, foreign direct investment (FDI) inflows into the
Philippines contracted by 22.4% in real terms in 2015 (latest year available), owing to the
adverse impacts of external shocks from Greeces debt crisis, the Chinese stock market crash,
and tightening of the USAs monetary policy:
FDI intensity was volatile over the 2011-2015 period, but stood relatively low at 1.8% of GDP
in 2015;
The government has been actively promoting public-private partnership (PPP) programmes,
as well as increasing infrastructure spending, which will continue to boost gross fixed capital
formation. With the help of the Japanese government, President Duterte is looking to build a
25.0 km underground transport system linking key commercial areas and government
centres. This project is expected to start in 2020 and should be completed by 2024, costing
approximately PHP227 billion (US$4.6 billion);
There are concerns that US-based investors will cut back, owing to President Dutertes
remarks on cutting ties with the USA. However, this might not gravely hurt the economy, as
China invested US$24.0 billion in the Philippines in October 2016.

Chart 8 Case Study on Investment: The Philippines

Source: Euromonitor International

Chart 9 Investment Profile of the Philippines

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Source: Euromonitor International from national statistics/OECD/UN/IMF/IFS

Note: Data for 2017 is forecast

GOVERNMENT FINANCE

Large Infrastructural Spending Could Worsen the Budget Deficit

Greater infrastructure spending caused the general government net budget to transform to a
deficit of 0.4% of GDP in 2016 from a surplus of 0.6% in 2015. The budget deficit is expected to
deteriorate under President Duterte, given his large infrastructural spending plans:
Strong economic growth helped reduce public debt levels from 41.4% of GDP in 2011 to
33.7% in 2016;
Those aged 65+ comprised only 4.7% of the total population in 2016, which is expected to
rise moderately to 6.7% by 2030. The old-age dependency ratio is accordingly low and will
rise from 7.3% in 2016 to 10.3% by 2030. This, however, places pressure on the government
to increase job opportunities for its young population.

Chart 10 Government Finances in the Philippines

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Source: Euromonitor International from national statistics/IMF/OECD

REGIONAL COMPARISON
Chart 11 The Philippines vs. Asia Pacific and Selected Economies

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Source: Euromonitor International from national statistics/ILO/OECD/UN/IMF (WEO)

Note: Data for 2017 is forecast

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