Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
Last Published: 11/27/2018
  • The Philippines is the thirteenth largest country in the world by population (more than 102 million) and is the fifth-largest English-speaking country.  It also has one of the youngest populations in the world, with about 38 percent of the population under the age of 18.  About 90 percemt of Filipinos between the age of 10 and 64 are functionally literate.  Relatively high population growth (nearly two percent annually) will continue to help drive economic growth for the next several years, while also increasing the strain on social spending and the country’s infrastructure. 

  • The Philippine annual GDP growth slowed slightly to 6.7 percent in 2017, from 6.9 percent during the 2016 election year, but remained among the highest in the region. A surge in exports (up 19.5 percent in real terms), stronger manufacturing activity (up 8.4 percent), and a recovery in agricultural harvests from depressed 2016 levels partially offset slower increases in post-election government spending, household consumption, and investments in durable equipment.  Philippines GDP increased 6.8 percent during 2018’s first quarter according to preliminary official estimates, spurred by 25 percent real growth in public sector construction outlays and nearly 14 percent growth in other government spending.

  • Consumer spending -- supported by remittances from more than ten million Filipino migrants and overseas workers -- remained the major component of domestic demand but expanded more moderately in 2017 (5.9 percent in real terms) compared with 2016 (7.1 percent) as rising inflation and a somewhat higher unemployment rate eroded consumer sentiment.  Combined public sector consumption and construction expenditures, up 11 percent in 2016, slowed to 8 percent growth during the 2017 post-election year.  Investments in durable equipment increased more moderately (10.7 percent), which could partly reflect a cyclical slowdown following two consecutive years of rapid growth (23 percent in 2015 and 37.7 percent in 2016).  Most economists forecast the economy to continue growing in the 6.6 to 6.9 percent range in 2018 and 2019, buoyed by the Duterte government’s more expansionary fiscal stance and $180 billion infrastructure plan (known as “Build Build Build”).

  • Consumer price inflation continued upward during 2017 and averaged 2.9 percent for the full year, higher than in 2016 (1.3 percent) but still within the central bank’s targeted two to four percent band.  Inflation has accelerated further into 2018, hitting 4.6 percent in May and averaging 4.1 percent during the first four months of the year from surging global oil prices, a weakening currency, problems with government rice buffer stocks, and the effects of the first tax reform package enacted into law in December 2017 (which, among others, imposed or increased excise taxes on petroleum products, sugar-sweetened beverages, automobiles, tobacco and liquor, and coal).  The Philippines Monetary Board (the highest policymaking body of the Bangko Sentral ng Pilipinas, or BSP, the central bank) announced a 0.25 percentage point increase in the monetary policy rate in April, the first increase since September 2014, to stem heightening inflation expectations; analysts predict there will be another one to two policy rate increases before the end of the year.  The BSP, which expects inflation to peak toward the end of 2018, also announced a higher 4.6 percent inflation forecast for 2018 but expect inflation to revert to the two to four percent target range by 2019. 

  • The Philippines balance of payments deficit narrowed somewhat, from $1 billion in 2016 to $862 million in 2017 (equivalent to 0.3 percent of GDP).  The current account logged a deficit for a second consecutive year, following 13 consecutive years of surpluses prior to 2016, and more than doubled to $2.5 billion (0.8 percent of GDP).  However, the financial account reversed from a $175 million deficit to a $2.2 billion surplus; as larger net inflows of foreign direct investments combined with significantly lower net outflows in other financial investments (attributed mainly to lower net lending by local banks to non-residents and net repayments of foreign loans), more than offset larger net outflows of portfolio capital (which increased from $1.5 billion to $3.9 billion) stemming from the U.S. Federal Reserve System’s monetary tightening decisions, geopolitical uncertainties, and higher repayment/pre-payment of long-term debt securities held by offshore investors.  The higher current account deficit reflected the widening of the merchandise trade gap by nearly 16 percent year-on-year to over $41 billion as the merchandise import bill (up 14.5 percent in US$ terms) outpaced export revenues (which increased 12.8 percent following 2016’s 1.1 percent contraction), eroding gains from overseas Filipinos’ remittances (up 5.3 percent) and Business Process Outsourcing (BPO) revenues (up 9.6 percent).  On a positive note, demand for capital equipment and raw materials/intermediate goods have mainly driven import growth in recent years -- suggesting larger production capacity investments, partly in response to the Duterte administration’s aggressive infrastructure program.  Lagging industrial development and integration of the manufacturing sector in global value chains pose longer-term challenges to the Philippines’ export competitiveness. 

  • Net foreign direct investment (FDI) inflows, trending upward since the administration of former President Benigno Aquino III, rose by 21.4 percent year-on-year during 2017 to a new record-high of $10 billion.  The Philippines nevertheless remains among Southeast Asia’s FDI laggards, with barely four percent of the total FDI stock in the region.  The United States -- with an estimated $5.9 billion of FDI in the Philippines as of end 2016 -- ranks among the Philippines’ top investors.  The Philippines has improved overall in various competitiveness rankings over the past seven to eight years, though several declines were reported in the past year.  However, the inadequate state of infrastructure remains a weak spot and investors also continue to cite government red tape, regulatory uncertainties, a slow judicial system, and corruption as challenges to doing business in the country.

  • The Philippine Central Bank’s gross international reserves (GIR) ended 2017 at $81.6 billion, higher by 1.1 percent from end-2016’s $80.7 billion cushion.  Larger loan proceeds from government borrowings deposited with the BSP, revaluation adjustments on the BSP’s foreign currency and gold holdings, and income from the BSP’s offshore investments offset outflows from the BSP’s foreign exchange operations to help smoothen volatility in the foreign exchange market.  The end-2017 GIR level equaled eight months’ worth of goods and service imports and more than four times the Philippines’ short-term foreign debt, well above international benchmarks.

  • From two percent of GDP under its predecessor, the current administration has programmed a higher, annual budget deficit ceiling of three percent of GDP under President Duterte’s term to boost spending on social services, undertake an ambitious infrastructure plan, and make more significant inroads to reduce poverty.  The 2017 fiscal deficit (2.2 percent of GDP) ended below program; revenue collections exceeded the target by 1.9 percent while expenditures fell short by 2.9 percent.  About 30 percent of the “underspending” during the year stemmed from lower-than-projected debt service payments because of lower-than-programmed borrowings, as well as savings from bond exchange and other debt management initiatives.  Expenditures nevertheless increased from 17.6 percent of GDP in 2016 to 17.9 percent of GDP in 2017, the highest recorded since 2004.  Furthermore, infrastructure/other capital outlays exceeded the full-year 2017 goal by 3.5 percent, raising hopes the government is taking more aggressive efforts to meet its budget allocations.  Tax collections increased nearly 14 percent from the year before and missed the 2017 goal by a slim 0.3 percent margin to equal 14.2 percent of GDP (from 13.7 percent of GDP in 2016).  The ratio of total revenues to GDP (which increased from 15.2 percent to 15.7 percent) nevertheless remains among the lowest regionally.  Boosting tax collections through legislative and administrative reforms, untangling spending bottlenecks, and improving government agencies’ capacity to implement programs/projects will be critical to delivering more aggressive infrastructure and anti-poverty promises.  The Duterte administration estimates the enactment into law in December 2017 of the first of an envisioned four- to five-package Comprehensive Tax Reform Program to generate an additional 0.7 percent of GDP in revenues, on average, from 2018 to 2022 (when President Duterte is scheduled to end his six-year term).  The government hopes to shepherd further tax policy and administration reforms to achieve its twin goals of raising revenues more from 15.7 percent of GDP in 2017 to 17.5 percent of GDP by 2022 and promoting a simpler and more equitable tax system. 

  • Sustained strong economic growth, resilience to domestic and external shocks, debt management efforts, and tax reform initiatives have been recognized by the “big three” credit rating agencies — Fitch, S&P, and Moody’s – which all currently rate the Philippines a notch above minimum investment grade, the highest achieved thus far in the Philippines’ credit-rating history.  Credit rating agencies are closely watching further progress on tax reform, infrastructure spending (particularly for the “flagship” projects), budget implementation, and monetary policy responses to accelerating inflation, foreign exchange rate volatility, and rapid credit growth.

  • The unemployment rate increased from 5.5 percent in 2017 from 5.6 percent in 2016, which may have been due in part to the unwinding of 2016’s temporary, election-related jobs.  The official, national poverty rate also declined to 21.6 percent in 2015 from 25.4 percent in the previous 2012 survey and anecdotal evidence suggests the middle class is expanding.  Although gradually improving, the high level of inequality nevertheless remains a challenge; the incidence of poverty varies significantly across regions.  The country’s underemployment rate has improved recently but continues to be pervasively high, hovering at about-17 percent of the employed, suggesting challenges with the availability of quality jobs.

  • The political situation in the Philippines is stable.  Elected in 2016 for a six-year term, President Duterte enjoys high approval ratings and has cracked down on crime, terrorism, and illegal drugs, though his anti-drug campaign has drawn criticism from the international community and human rights groups.  Economic stability and business activity have continued largely unabated.

  • The Duterte administration is attempting to end one of the longest running and most debilitating militant insurgencies in Southeast Asia.  Despite liberating Marawi City – a regional hub of 200,000 people in the southern island of Mindanao – from a five-month terrorist siege in October 2017, terrorism remains a threat.  The entire island of Mindanao remains under martial law through the end of 2018.  Although there are indications of progress in the peace process between the government and the Moro Islamic Liberation Front, with the government prepared to offer greater autonomy for Muslim Mindanao, the prospects remain uncertain and fraught with risks. 

  • The economy that the Duterte Administration inherited in 2016 was significantly stronger than the economy inherited by the previous Administration. Overseas workers’ remittances and the business process outsourcing industry are major contributors to the economy’s resilience to domestic and external shocks.  While the Philippines’ reputation has shifted from being the sick man of Asia to a bright star in the region, foreign firms continue to face constraints to growth and development and the Philippines is working to improve the inadequate state of infrastructure, regulatory quality, rule of law, anti-corruption enforcement, revenue collection and expenditure management, and human capacity development in health and education.  While President Duterte’s harsh rhetoric critical of some countries intermittently creates uncertainty among foreign investors, a strong, well-respected economic team has largely promoted macroeconomic policy continuity as articulated in the administration’s Ten-Point Socio-Economic Agenda.  The U.S. and the Philippines  hold, every year, bilateral trade discussions under the Trade and Investment Framework Agreement.  As of mid- 2018, the United States is also seriously considering the Philippines’ request to enter into a bilateral free trade agreement.

  • In 2017, U.S.-Philippines bilateral trade amounted to US$20 billion, 10 percent higher than the 2016 level.  The Philippines ranked as the 31st largest export destination for U.S. products and the 29th largest source of U.S. merchandise imports.  The U.S. trade deficit with the Philippines was at US$3.2 billion.

  • The United States was the Philippines’ fourth  largest country supplier in 2017, with an eight percent share of the country’s import bill. The top three import sources of the Philippines are China, with an 18 percent import share; Japan, 11 percent; and South Korea, 9 percent.  The United States was the Philippines’ largest export market after Japan, with 15 percent of total exports.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.

Philippines Trade Development and Promotion