*Real GDP growth in the Philippines accelerated from 5.8% y-o-y in Q215 to 6.0% in Q315, as strong domestic demand more than offset export weakness. Domestic resilience should persist, informing our expectations for the Philippine economy to remain on a sound footing despite growing external challenges. Accordingly, we are forecasting real GDP growth to come in at 5.7% and 6.0% in 2015 and 2016, respectively.
*Following the decision by the Bangko Sentral ng Pilipinas (BSP) to keep its benchmark interest rate unchanged at 4.00% at its December monetary policy meeting, we are forecasting the central bank to stand pat over the course of 2016, as the Philippine economy should remain in a growth-inflation sweet spot. That said, potential economic risks stemming from a worsening of the external environment and upcoming elections, as well as inflation risks arising from prolonged El Nino, could lead to monetary adjustments.
*The prospects for capital gains in the Philippine fixed income market will be limited in the months ahead owing to sustained nominal GDP growth without the need for interest rate cuts, the potential for inflation to rise due to prolonged El Nino, and the likely normalisation of US monetary policy. While yields will rise, we expect Philippine bonds to be less vulnerable than regional peers such as Indonesia to a Fed liftoff, owing to the country's improving fiscal and external positions.
*The Philippine peso is facing growing downside risks amid a precarious equity market, which has begun to underperform after years of outperformance and could signal headwinds facing the broader economy. That said, a solid current account surplus and high real interest rates should provide some support. As such, we maintain our forecast for the Philippine peso to end 2015 at USD47.27/USD before depreciating towards our end-2016 target of PHP48.23/USD.
Major Forecast Changes
*We have revised our forecast for the BSP to keep its benchmark interest rate unchanged at 4.00% through 2016, versus a 25bps hike previously.
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.
*The largest risk to our medium-term peso view comes from the potential for a further devaluation in the Chinese yuan by the People's Bank of China (PBOC) so as to support China's economy. A weaker yuan could see the BSP allow for a further weakening of the peso in order to maintain the competitiveness of Philippine exports relative to Chinese exports.
|e/f = BMI estimate/forecast. Source: National Sources/BMI|
|Real GDP growth, % y-o-y||6.1||5.7||6.0||5.9|
|Nominal GDP, USDbn||285.8||304.0||308.6||336.8|
|Consumer price inflation, % y-o-y, eop||2.7||1.5||4.0||4.0|
|Exchange rate PHP/USD, eop||44.72||46.91||48.23||47.75|
|Budget balance, % of GDP||-0.6||-0.4||-0.2||0.1|
|Current account balance, % of GDP||4.4||4.0||4.1||4.2|
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).
- 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.
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:
- 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.
- 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.
- 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.
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.
- 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 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.
- 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.
- 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.