Philippines Country Risk Report

Published 29 April 2015 | Quarterly

  • 52 pages
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$1,195.00
Philippines Country Risk Report

Core Views

* We forecast real GDP growth of 6.0% for the Philippines in 2015, as we expect sustained solid growth in domestic demand. Positive growth momentum will in turn keep the Philippine peso resilient. That said, the ongoing economic slowdown in China and weakness in the Japanese economy could act as a drag on Philippine exports.

*We have pared back our expectations for a rate hike in the Philippines, and are now forecasting the Bangko Sentral ng Pilipinas (BSP) to keep its benchmark interest rate unchanged at 4.00% in 2015. This is due to our expectations for the Philippine economy to continue along a growth-inflation sweet spot and for the central bank to not go against the wave of monetary easing seen across central banks in the region.

*Fiscal reform efforts by the Philippine government have continued to bear fruit. We expect continued fiscal prudence, and are forecasting the country's budget deficit as a share of GDP to narrow further, from 0.6% in 2014 to 0.4% in 2015.

*Weak oil prices, sustained growth in the business process outsourcing (BPO) sector and continued strong remittance inflows will allow the Philippines to generate a robust current account surplus, which we are forecasting will come in at 4.4% of GDP in 2015. A strong current account position will in turn lend support to the Philippine peso despite an environment of broad US dollar strength.

Major Forecast Changes

*We have revised our 2015 benchmark interest rate forecast to 4.00%, from our previous estimate of 4.25%.

Key Risks To Outlook

*The Philippines remains at risk of substantial hot money outflows in the event of acute global credit or financial market stresses.

*Growth slowdowns in both China and Japan, to which the Philippines is heavily exposed in both investment and trade terms, could undermine the country's strong domestic growth story should they be more severe than expected.

*The largest risk to our medium-term peso view comes from the potential for a devaluation of the...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Typhoon Ruby Unlikely To Derail Growth Momentum
8
While Typhoon Ruby will weigh on economic activity in the near-term, we believe the Philippine economy will likely remain resilient
As such, we maintain our 2014 and 2015 real GDP growth forecasts at 5
We also expect a more effective
response by the government to the latest disaster relative to that for Yolanda in 2013, which will bode well for domestic politics
Table: Political Overview
8
Long-Term Political Outlook
9
Stable Politics For Now, But Political Challenges Remain
9
The Philippines faces a number of political challenges over the coming years that, if handled successfully, could improve governance
However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent
However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent
instances of turmoil
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Economy To Stay Resilient Despite Weak Q314 GDP Print
14
While the Philippine economy performed poorly in Q314, owing to lacklustre fiscal spending and the surge in import growth, we
While the Philippine economy performed poorly in Q314, owing to lacklustre fiscal spending and the surge in import growth, we
nevertheless remain positive on the economy
That said, potential growth
headwinds ahead will pose downside risk to our 2015 real GDP growth forecast of 6
Tab le: Ec onomic Activity
14
Fiscal Policy
15
Fiscal Position To Continue On A Sustainable Trajectory
15
Continued budget discipline by the Philippine government will keep the country's fiscal position on a sustainable trajectory over the
Continued budget discipline by the Philippine government will keep the country's fiscal position on a sustainable trajectory over the
coming years
However, the
continued lack of fiscal spending momentum could weigh on real GDP growth in 2015
Tab le: Fisca l Policy
15
Monetary Policy
16
Easing Inflation To Hold Off Rate Hikes For Now
16
Falling oil prices and the deceleration in money supply growth should keep inflation manageable over the coming months
That
said, we continue to see one 25 basis points rate hike in H215, owing to potential price pressures emanating from still strong credit
said, we continue to see one 25 basis points rate hike in H215, owing to potential price pressures emanating from still strong credit
growth
Table: Monetary Policy
17
Exchange Rate Policy
18
Peso Resilience To Persist
18
While a still positive economic growth outlook will keep the Philippine peso resilient, we believe ongoing weakness in regional peer
While a still positive economic growth outlook will keep the Philippine peso resilient, we believe ongoing weakness in regional peer
currencies will limit strength in the unit
60/USD in
2015
Tab le: CURRENCY FORECAST
18
Table: Curent Acount
19
Chapter 3: 10-Year Forecast
21
The Philippine Economy To 2024
21
Uncovering A Forgotten Gem-
21
The Philippines holds significant economic growth potential, and has only begun to come into the investment spotlight
Although the
country has in the past been hampered by political instability and poor investor perception, President Benigno Aquino III has been able
country has in the past been hampered by political instability and poor investor perception, President Benigno Aquino III has been able
to make progress on the political and economic front
Moreover, consumerism is expected to pick up in a big way towards the end of the
decade as income levels rise
Table: Long-Term Macroeconomic Forecasts
21
Chapter 4: Operational Risk
25
SWOT Analysis
25
Operational Risk Index
25
Operational Risk
26
Table: Asia - Operational Risk
26
Availability Of Labour
27
Table: Asia - Availabi lity Of Labour Risk
28
Table: Labour Force Employment By Sector ('000)
31
Crime Risk
32
Table: Asia - Crime Risks
32
Table: Crime Statistics
33
Chapter 5: Key Sectors
35
Autos
35
Table: Autos Total Market - Historical Data & Forecasts
35
Food & Drink
37
Table: Food Consumption Indicators - Historical Data & Forecasts
39
Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts
40
Tab le: Mas Grocery Retai l Sales By Format - Historical Data & Forecasts
41
Other Key Sectors
43
Table: Oil & Gas Sector Key Indicators
43
Table: Pharma Sector Key Indicators
43
Table: Infrastructure Sector Key Indicators
43
Table: Telecoms Sector Key Indicators
44
Table: Defence & Security Sect or Key Indicators
44
Tab le: Freight Key Indicators
44
Chapter 6: BMI Global Assumptions
45
Global Outlook
45
New Era For Oil
45
Table: Global Asumptions
45
Table: Developed States, Real GDP GrowtH, %
46
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
46
Table: Emerging Markets, Real GDP Growth, %
47

The Philippines Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Philippines and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market..

An influential new analysis of Philippines' economic, political and financial prospects through end-2017, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Philippines' economic and industry growth through end-2017.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Philippines' country risks against regional peers using BMI's country comparative Risk Ratings system.
  • Evaluate external threats to doing business in Philippines, including currency volatility, the commodity price boom and protectionist policies.

The Philippines Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Business Environment and Key Sector Outlook.

Economic Outlook:

How will the Philippine economic policy-making and performance impact on corporate profitability over 2013-2017?

BMI provides our fully independent 5-year forecasts for Philippines through end-2017 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Philippines Country Risk Report features BMI's forecasts with supporting analysis for 2013 through to end-2017, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Ratings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector exposure).
  • Global Assumptions - forecasts for each year to end-2017 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Philippines and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Philippines, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Philippines over the next 5-years?

BMI's Philippines country Risk Ratings evaluate the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Philippine Market - Political Strengths, Weaknesses, Opportunities and Threats facing Philippines.
  • Political Stability and Risk Assessment - BMI's Risk Ratings assess explicit short- and long-term risks to political stability; latest ratings, rankings and trends for Philippines' risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.

Key Benefits

  • Benchmark Philippines' risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Business Environment

Business Environment Risk Ratings with SWOT Analysis - Business environment Risk Ratings for Philippines, benchmarked against ratings for regional neighbours.

Country Competitiveness - Competitiveness of Philippines' business operating environment in supporting corporate growth and profitability, compared with regional neighbours.

Business Environment Contents

  • Domestic Environment - Transparency, cronyism and corruption; labour market flexibility; corporate tax burden; interest rate levels; sophistication of banking sector and stock market; levels of business confidence; infrastructure and IT.
  • Foreign Direct Investment - Analysis of foreign investment regime; foreign ownership laws; attractiveness of business environment to foreign investors.
  • Foreign Trade - Analysis of trading environment, government trade policy, liberalisation measures, tariffs and membership of trade areas.

Key Benefits

  • Assess your company's evolving exposure to country specific operational and business risks, using BMI's in-depth analysis of the legal and regulatory business environment.
  • Understand your market's comparative strengths and weaknesses in the key areas of commercial infrastructure and business institutions, using BMI's proprietary global Business Environment Risk Ratings.

Key Sector Outlook

Which industry sectors in Philippines will grow fastest, and where are the major investment opportunities in the market?

BMI's identifies investment opportunities in Philippines' high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry with developments over 2008-2012, covering major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2013-2017, using BMI's proprietary industry modeling technique, which incorporates all key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across, and within, each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express