Market monitor: The Philippines

Foreign paychecks and domestic demand fuel growth.

Economic overview

The Philippines ranks as one of Asia’s fastest-growing economies, with several drivers for expansion: exports, especially agricultural products and electronics; an outsourcing industry that employs almost 1 million workers; money flowing into the country from Filipinos working overseas; and domestic consumer spending, which accounts for about 70% of the economy. The economy grew by 5.3% in the third quarter, compared to a year ago. Yet the pace disappointed market-watchers who had forecast growth of 6.6% in the quarter. Officials said reduced spending on government projects was to blame and hinted at plans to boost state expenditures. Economists now predict annual growth of around 6%.

The International Monetary Fund forecasts the Philippines’ gross domestic product will rise about 6% every year at least through 2019, bolstered by consumer spending and exports. Indeed, while government spending declined 2.6% in the Philippines last quarter, household consumption rose 5.2%, and industrial output climbed 7.6%, according to data compiled by Bloomberg News. In recent years, the country’s increased political transparency and low debt have attracted more international investment.

Business travel industry insight

Most international flights fly into Manila, although some direct international flights now go to Cebu. Local carriers offer frequent domestic flights at reasonable fares. Flights are generally faster and more comfortable than getting around the country by bus or ferry. Taxis are plentiful and inexpensive in major cities. It’s best to get a taxi at a hotel; ask the taxi driver to use the meter. Rail transit is available in some areas of metro Manila. Locals generally speak English and Filipino, although Tagalong is the first language of about one-third of the population. English is widely used in commercial transactions. National newspapers publish in English; local TV networks broadcast mainly in Filipino. Mobile phone coverage is good, and high-speed Internet access is available in most business districts of Manila. Many international hotel chains operate in metro Manila; some also operate in Cebu and Davao. All passengers departing from Ninoy Aquino International Airport in Manila must pay a fee of 750 pesos (about US$17).

Opportunities

  • Money flowing into the country from citizens working abroad accounted for 10% of the economy last year—hitting a record $23 billion in 2013. The central bank forecasts funds from overseas will rise 5.5% this year and 5% in 2015.
  • More than a third of the country’s population is below age 15—one of the youngest populations in Asia Pacific.
  • The World Bank gave the Philippines higher marks in a recent annual report that measures political stability, rule of law, control of corruption and other factors key for business investment and growth.

Challenges

  • The Philippines’ economic planning secretary has warned it will be a “big challenge” to reach the government’s growth target of 6.5% to 7.5% this year.
  • The decline in public expenditures is due, in part, to a Supreme Court ruling that curbed the administration’s spending practices. The court deemed unconstitutional a presidential move to speed up infrastructure spending without congressional approval. The president has promised to fight the ruling.
  • Some economists have warned rising inflation could erode domestic consumption. That would be a major hit to growth: Private consumption has expanded more than 5% in each of the past 13 quarters, according to Bloomberg.

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