The Philippine economy is considered one of the most dynamic economies in the East Asia Pacific region. Solid economic fundamentals and a competitive workforce drive the growth momentum of its economy. The country’s average annual GDP growth accelerated to 6.4% between 2010 to 2019.
Gross National Income (GNI) per capita in the country is in the lower-middle-income category with $3,850 in 2019. It is likely to improve to an upper-middle-income range in the near future. The Business Process Outsourcing (BPO) boom, rise in manufacturing activities, and remittances from overseas Filipino workers (OFWs) are expected to bolster the Philippines’s GDP outlook in the next two years.
The Philippines’ GDP contracted by approximately 8.3% amidst the Covid-19 pandemic, following previous forecasts of 0.6% growth. Stringent quarantine measures led to significant decreases in consumption and investment growth. It further caused a dramatic slowdown in exports, tourism, and remittances.
Philippine GDP Annual Growth Rate (in %)
The International Monetary Fund (IMF) has decided to maintain its GDP forecast for the Philippine economy at 5.4% in 2021 and 7.0% in 2022 but will observe the economic impact of the new Covid-19 variants.
The Philippines’ population is currently around 110.7 million, with a median age of 25.7 years. The unemployment rate was only 5.3% in 2018 and 5.1% in 2019. But the loss of jobs due to the pandemic in 2020 pushed it to 10.4%. The figure could decrease to 7.4% and 6.7% in 2021 and 2022, respectively.
Philippine Unemployment Rate (in %)
Currency and Central Bank
The Philippine peso (PHP), also referred to as piso in Filipino is the country’s official currency. It is subdivided into 100 centavos or sentimos. Prior to the adoption of the Filipino language on banknotes and coins in 1967, the English word peso appeared on Philippine money.
The Bangko Sentral ng Pilipinas (BSP), serves as the country’s central bank. The BSP was established in 1993 in accordance with Republic Act 7653 or the New Central Bank Act of 1993. This was later amended under Republic Act 11211 or the New Central Bank Act of 2019.
Philippine Inflation (in %)
For the 6th consecutive time, the BSP Monetary Board has decided to maintain the key interest rate at 2.0% while overnight deposit and lending facilities were kept at 1.5% and 2.5%, respectively.
Meanwhile, the central bank has upgraded its average inflation forecast from 4.0% to 4.1% for 2021 and from 3.0% to 3.1% for 2022 and 2023.
Industry and Trade
Services, industry, and agriculture are the main sectors of the Philippine economy. Food processing, cement, iron, and steel production, and telecommunications are among the country’s most significant contributors.
The services sector makes an enormous contribution to the country’s GDP at 61% and provides 57.6% of the nation’s labour force. Over the past years, the sector has expanded tremendously, particularly in telecommunications, business process outsourcing (BPO), and finance.
The BPO boom in the Philippines is attributed to several outsourcing advantages that companies enjoy, such as high spoken English proficiency, a highly educated labour force, and lower operational and labour costs.
The Philippines’ industry sector is second in GDP contribution with 30.1% and employs 19.8% of the total workforce. Among the country’s major manufacturing activities are industrial food processing, cement, glass, chemicals production, and iron and steel manufacturing.
Lastly, the agricultural sector’s contribution to the GDP has continued to decline in recent years and is currently at 8.8%. However, it still provides employment for 22.5% of the labour force. Coconut, sugar, and rice are among the top agricultural products of the Philippines.
The country is currently ranked 39th globally in terms of total exports, with integrated circuits, office machine parts, insulated wire, semiconductor devices, and electrical transformers as its main export products. Its top export partners are China, the US, Japan, Hong Kong, and Singapore.
Philippine economy Balance of Trade
Meanwhile, the Philippines is 33rd in total imports and its top import products are integrated circuits, refined petroleum, cars, crude petroleum, and broadcasting equipment. China, Japan, South Korea, the US, and Singapore are its main import partners.
Survey and Rankings
In the Heritage Foundation’s Index of Economic Freedom, the Philippine economy fell from 70th freest in 2020 to 73rd in 2021. Its overall score went down by 0.4 points from 64.5 to 64.1. But the country has remained in the “Moderately Free” category.
The Philippines improved its ranking to 95th place from the 124th spot in the World Bank’s 2020 Ease of Doing Business. It is currently in the 11th spot among countries in East Asia and the Pacific region. The country showed significant improvements, particularly in the area of protecting minority investors.
Stock Exchanges and Capital Markets
The Philippine Stock Exchange or PSE is currently the country’s sole stock exchange. It was formed following the merger between the Manila Stock Exchange and the Makati Stock Exchange in 1992. PSE has been operating since 1927, making it one of the oldest stock exchanges in Asia.
The PSE Composite Index or PSEi is the main index of the Philippines. It comprises 30 of the largest and most active stocks listed on the exchange. These companies were chosen based on a set of public float, liquidity, and market capitalisation criteria.
The PSE has a total market capitalisation of $260.89 billion as of June 2021 from 275 listed companies. Exchange-Traded Funds (ETFs) are offered via the First Metro Philippine Equity Exchange Traded Fund, Inc.
According to the Asian Development Bank (ADB), the Philippine bond market experienced the fastest quarter-on-quarter growth in the first quarter of 2021 among emerging East Asia countries due to higher government borrowings.
During the quarter, the country’s outstanding bonds went up by 6.5% from $178 billion in Q4 2020 to $188 billion in Q1 2021 while the local bond market grew by 28.4%. Government securities comprised 82.7% of the total local currency bond stock, while corporate bonds make up the remaining 17.3%.
The ADB explained that Treasury bills and Treasury bonds were the main drivers of the growth due to the heavy government borrowing from the local market to finance its pandemic relief efforts.
Real Estate Market
The Philippine real estate market has grown significantly over the past few years as a result of the economic growth and expansion of the middle class.
The central bank reported a 10% decline in residential property prices during the first quarter of 2021, compared to the same period in 2020. The BSP attributed the nationwide decline to the downtrend of property prices in the country’s capital.
Countrywide condominium prices fell by 10.7% during the quarter, compared with the 23.6% increase during Q1 2020. Also, the prices of duplex homes went down by 20.7%, the largest decline since 2016.
On the other hand, the prices of townhouses and single-detached and attached houses went up by 8.3% and 0.2%, respectively.
Philippine Housing Index (in %)
Source of charts: tradingeconomics.com