The Philippine economy is considered one of the most dynamic economies in the East Asia Pacific region. However, the 2020 Covid-19 pandemic has forced the country’s GDP to contract.
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.
Philippines Economy Overview
Solid economic fundamentals and a competitive workforce drive the growth momentum of the Philippine 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 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.
However, the country’s key economic drivers including strong consumer demand, robust job market, and steady remittances from overseas workers remain resilient. In its January 2021 World Economic Outlook update, the IMF forecasts the Philippine economy to grow by 6.6% in 2021 and 6.5% by 2022.
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.
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.
To boost economic activity through lower borrowing cost, the BSP Monetary Board has decided to maintain the key interest rate at 2%. Meanwhile, the central bank is targeting an inflation rate of between 2% to 4% for 2021 and the IMF projects it would remain at 3% in 2021 and 2022.
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 United States, Japan, China, Hong Kong, and Singapore are the top trading partners of the Philippines in terms of exports, while the country gets the majority of its imports from China, Japan, South Korea, the US, and Indonesia.
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 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.
In 2020, government securities gave a boost to the Philippines’ bond market amidst the pandemic. The Bureau of the Treasury issued more government securities to raise additional funds, to combat the pandemic.
Government securities comprised 79.9% of the total local currency bond stock, with $134.1 billion in outstanding treasury bills and bonds. Additionally, corporate bonds also went up by 3.8% quarter-on-quarter in the third quarter of the year, amounting to $33.7 billion.
Overall, the domestic bond market grew by 21.5% year-on-year to $167.8 billion at the end of the quarter.
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. In its capital city, Manila, three-bedroom condominium prices went up by over 15% in 2018. Meanwhile, luxury home prices surged by 11%.
Despite the pandemic, construction activities have continued, but at a slower pace. Sales fell by 49% during the first quarter of 2020. Vacancy rates could increase from 5.5% to 7% in 2021. However, the low interest and mortgage rates may enable developers to offer flexible terms to buyers.