Philippines

Economic Conditions

The Philippine economy has experienced repeated boom-and-bust cycles for the
past decades. According to the 2017 estimate of the International Monetary Fund's
statistics , Philippines is the world's 34th largest economy by nominal GDP , it is
the 13th largest economy in Asia, and the 3rd largest economy in
the ASEAN after Indonesia and Thailand. The Philippines is one of the emerging
markets and is the sixth richest in Southeast Asia by GDP per capita values, after the
regional countries of Singapore, Brunei, Malaysia, Thailand and Indonesia.
The Philippines is primarily considered a newly industrialized country, which has
an economy transitioning from one based on agriculture to one based more on services
and manufacturing. As of 2017, GDP by Purchasing power parity was estimated to be at
$986.980 billion.
Primary exports include semiconductors and electronic products, transport
equipment, garments, copper products, petroleum products, coconut oil, and fruits.
Major trading partners include Japan, China, the United States, Singapore, South
Korea, the Netherlands, Hong Kong, Germany, Taiwan, and Thailand. The Philippines
has been named as one of the Tiger Cub Economies together with Indonesia,
and Thailand. It is currently one of Asia's fastest growing economies. However, major
problems remain, mainly having to do with alleviating the wide income and growth
disparities between the country's different regions and socioeconomic classes, reducing
corruption, and investing in the infrastructure necessary to ensure future growth.
Gross Domestic Product (GDP), per se, has been growing vigorously. It
expanded by 6.9% in 2016, 6.7% in 2017, and 6.8% in the first quarter of 2018. It is
worth noting that this is the first time since our post-liberation era that the Philippines
have grown beyond 6.5% for ten consecutive quarters.

On the demand side, the drivers of the economy have been government
consumption, capital formation, and consumer spending. The latter, however, has
slowed down this year due to the rising prices of commodities.

On the supply side, the service sector expanded by 6.8% in 2017 and further to
7% in the first quarter of 2018. Industry grew by 7.3% in 2017 against 7.9% in 2018.
These numbers are relevant as it shows the extent by which our industrial sector
continues to grow faster than the service sector. It proves that the country’s
manufacturing base is expanding and that industrialization is well on track.

Growth in agriculture remains dismal at 2.4% in 2017 and 1.5% in the first
quarter of 2018. Overall, GDP growth in 2017 was higher than the 5.8% recorded in
2015. The average economic growth during the Aquino administration was 6.3%. As a
result of rapid economic expansion, per capita income has increased correspondingly.
On a price adjusted viewpoint, it stood at $6,875 in 2015 and improved to $8,229 in
2017. In other words, the average income of the Filipinos has increased by 20% over
two years. Unemployment and underemployment rates have also improved. From 5.7%
and 16.1% in 2015, respectively, to 6.3% and 18.5%, in 2017. The improvement in the
country’s unemployment position was a result of a corresponding rise in foreign direct
investments and the jobs they created. From $6.64 billion in 2015, FDIs peaked to an all
time high of $10.05 billion in 2017.

Investment in infrastructure is the centerpiece of the Duterte administration. The

ratio of infrastructure spending to GDP improved from 4.3% in 2015 to 5.3% in 2017.
Note, this is the first time in 50 years that the ratio breached the 5% level. If the
intentions of the Duterte administration are to be fulfilled, spending on infrastructure will
accelerate to over seven percent from 2019 to 2022.

The otherwise rosy picture of the economy is negated by rising inflation. To deal
with higher prices, households inevitably tap into their savings. This results in a drop in
savings rates and available funds that would otherwise be used for investments, making
the economy less productive. High inflation also induces monetary authorities to
increase interest rates, if only to temper it. This, in turn, makes credit more expensive
for both manufacturers and service providers. The high cost of money will inevitably be
passed on to the consumer through higher prices. Mortgage and consumer loans will
also become more expensive, making it more difficult for people to purchase homes,
cars, and appliances.

High interest rates mop up liquidity in the market. This dampens consumer
spending and drags GDP. For exporters, the high cost of money, logistics, and power
make it more difficult for them to compete in the global marketplace. In fact, the steep
decline of Philippine exports has already begun.

High inflation causes fluctuations in exchange rates. The continuous drop of the
peso is testament to this. The volatility of the peso affects exports, imports, and
business transaction across borders. It also breeds business uncertainty. Potential
investors will think twice before investing in our shores given our unstable prices and
erratic currency. High inflation has multiple toxic effects that can blunt the benefits of our
6%+ GDP growth.