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Following its independence from the US in 1946, the Philippines faced political turmoil and a struggling economy, which led to a rise in poverty. Despite having favorable factors such as a large and youthful population, decent levels of education, and abundant natural resources, the economy struggled to reach its full potential. This was due to excessive protectionist policies that caused the misuse of resources, as well as years of corruption, institutional weakness, and mismanagement. The promotion of the labor-intensive, export-oriented manufacturing sector in the 1970s did improve living standards, but the economy continued to underperform due to inadequate infrastructure and falls into a weak-institutions trap.
As of 2023, the Philippines is a growing middle-income economy, with domestic consumption making up the largest portion of its GDP. The country is also well known for its exports of electronic components and services. The political environment of the country will likely remain stable and in good hands under President Ferdinand “Bongbong” Marcos Jr, who won the 2022 presidential election with a significant margin. However, there are concerns about his ability to lead the country effectively and separate himself from the negative legacy of his family’s political dynasty.
Under the Marcos administration, the country will continue to improve its business environment and economic growth. The recent cut in corporate tax and Mr. Marcos’ pro-market views have laid the foundation for infrastructure upgrades and regulatory reforms. Despite a slowdown in economic growth in 2023 due to rising interest rates and a weakened global economy, the country’s strong fundamentals will allow for a return to growth in the coming years. The country will face a wide fiscal deficit in 2023-24, but the return to pre-pandemic fiscal discipline and reliance on domestic financing will help control external debt commitments.
The central bank, the Bangko Sentral ng Pilipinas, will take aggressive measures to raise interest rates in the next six months, taking the policy rate to 5.5% or more. However, once the bank feels that inflation is slowing, it will aim to bring interest rates back to a more neutral level. President Marcos is working to strengthen the Philippines’ relationship with the US, which may cause tensions with China given the current state of relations between the two superpowers. The South China Sea will continue to be the main stage for tensions between China and the Philippines.
The future outlook of the Philippines will depends on a few driving factors: trade, service, and its demographic advantages.
On trade, being a member of ASEAN expose the Philippines to a number of trade agreement that will enable its continuously growing electronics products and service export. Ongoing FTA negotiation with the EU, its fourth largest trading part will potentially be another driving factor in it.
However, electronics goods being such a large part of the Philippine’s exports also pose a strong threat as increased competition from other low cost labor market and automation. This may hinder growth in this sector, causing the Philippines to redirect its focus back to its strongest advantage, which is services. Yet, services such as IT support and call center may be ripe for disruption in the coming years as significant improvement in language model have been made.
The demographic profile of the Philippines offers the potential for improved performance in the next few decades, but economic growth is likely to remain below its potential without significant structural changes. The high proficiency in English is an advantage, but this could diminish as other countries catch up. The reintroduction of English as the primary medium of instruction in secondary schools may improve English proficiency in the next 30 years, but institutional barriers in creating and executing effective policies will likely hinder significant growth in gross fixed investment. While the rise in investment in infrastructure and manufacturing is positive in the short-term, neighboring countries are expected to see more significant improvements.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
The economy has been growing robustly in recent quarters, but a significant slowdown is expected to occur in late 2022 and continue into the first half of 2023. The rise in consumer price inflation over the past year, leading to higher domestic interest rates, will impact private consumption growth, which is expected to slow from 7.2% in 2022 to around 5% in 2023 according to ADB. Investment growth is also likely to be below its long-term average in 2023, at 6.1%, due to both a high base in 2022 and higher borrowing costs.
Exports growth will be limited by weaker performance in major economies in 2023, including a short recession in Europe, slow growth in the US and China. As a result, the Philippines’ exports of goods and services are expected to slow to less than 5%, compared to an estimated 8.3% in 2022. Import growth will also decline in line with weaker domestic demand, leading to a negative contribution from the external sector to overall growth. If inflation is brought under control and global interest rates begin to decline in the second half of 2023, the economy has the potential to return to its pre-pandemic growth rate and average 6% growth per year after 2023. An increase in investment growth is expected with the further removal of restrictions on foreign businesses. Although there will be some diversification of supply chains from China, the Philippines’ manufacturing industry is not expected to benefit significantly compared to its peers, such as Vietnam. Meanwhile, the services sector, such as business outsourcing, is expected to resume its upward trend.
GDP Data is updated in January, 2023. Figures below represent GDP contribution with the expenditure approach by segment. Data is sourced from World Bank, IMF, and local government and refactored by our team. Forecasted data is from EIU.
In the coming years, a slight decrease in the annual average population growth rate is expected. According to estimates from UN, the growth rate will move down to 1.3% from 1.4% in 2017-21. Despite the availability of free contraception since December 2012, uptake remains inconsistent due to the significant influence of the Roman Catholic Church in the Philippines. The impact of the government’s policy is therefore likely to be felt in the long term. High levels of poverty and unemployment are expected to persist in near term, as the pandemic has reversed the progress made in reducing poverty in recent years. This means that many Filipinos will continue to leave the country for work once all pandemic-related travel restrictions are lifted.
Tagalog 24.4%, Bisaya/Binisaya 11.4%, Cebuano 9.9%, Ilocano 8.8%, Hiligaynon/Ilonggo 8.4%, Bikol/Bicol 6.8%, Waray 4%, other local ethnicity 26.1%, other foreign ethnicity .1% (2010 est. by CIA)
unspecified Filipino (official
Roman Catholic 79.5%, Muslim 6%, Iglesia ni Cristo 2.6%, Evangelical 2.4%, National Council of Churches in the Philippines 1.1%, other 7.4%, none <0.1% (2015 est. by CIA)
The Philippines was governed by Spain from 1565 to 1898, after which it was taken over by the United States. The country became independent in 1946. Ferdinand Marcos ruled the Philippines for 21 years (1965-1986) with a period marked by economic mismanagement and martial law. After Marcos’ rule, a democratic system was established with Corazon Aquino (1986-1992) as the president and was continued by Fidel Ramos (1992-1998) and Joseph Estrada (1998-2001). Estrada was removed in a military-backed civilian coup in 2001 and was replaced by his vice-president, Gloria Macapagal Arroyo, who won the presidential election in 2004. Benigno Aquino, the son of Corazon Aquino, won the 2010 presidential election and completed his full term before stepping down in June 2016. He was succeeded by Rodrigo Duterte, a populist and former mayor of Davao City. The 17th presidential election was held in May 2022, and Ferdinand “Bongbong” Marcos Jr (the son of Ferdinand Marcos) was inaugurated as president in June 2022.
The Philippines has a presidential system of government with the president having a single 6-year term. The legislative branch, Congress, is based on the US model and has two elected bodies: the Senate (24 members) and the House of Representatives (311 members). Currently, the focus of the government is on the economic effects of the war in Ukraine, and job creation remains a key policy challenge due to the pandemic and increasing cost of living. Despite a shift in industrial policy that has not yet been realized, infrastructure upgrades, such as those in the “Build, Build, Build” program, will continue to be a priority under the Marcos administration.
President Marcos is likely to maintain the pro-market policy approach of his predecessor, Mr. Duterte. This will involve initiatives to improve the business environment, increase competitiveness, and liberalize investment regulations. Both conservative and liberal politicians support a business-friendly agenda, which will result in the gradual reduction of corporate tax from 30% to 20% by 2029. Despite these efforts, corruption and inefficiency will continue to be challenges in implementing major reforms. The poor state of infrastructure is a significant barrier to business in the Philippines, and the “Build, Build, Build” program will continue under President Marcos, albeit with a focus on fiscal discipline. The government is likely to seek funding from the private sector for infrastructure projects, which could lead to delays. Future projects may shift towards digitization and renewable energy.
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