Philippines Business Forecast Report Q3 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	65
ISBN Number	1745-0659
Product Code	BMI02152

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Summary

We continue to expect the Philippines to be a regional economic outperformer in 2009 as robust remittances underpin private consumption. We have nevertheless revised down our 2009 GDP growth forecast from 2.8% to 0.9% on the back of a more bearish outlook on the global economy, which will weigh on exports and corporate investment. We thus expect growth to be the main concern of the government and central bank in their policymaking over the coming year. We believe lower growth could have repercussions on politics, where uncertainty is likely to remain high due to the Arroyo administration's ongoing efforts to alter the constitution and a tight starting field ahead of the upcoming presidential and congressional elections in May 2010.

The Philippine political scene remains in a state of flux as the Arroyo administration is making a last push for constitutional change ahead of the May 2010 elections. We see great difficulties in amending the constitution in such a short timeframe, but maintain that constitutional reform remains a risk to overall political stability. Meanwhile, Vice President Noli de Castro remains the frontrunner to win next year's presidential polls, but will be hampered by his lack of the financial resources needed to mount a successful campaign, which will make him dependent on the ruling Lakas-Kampi-CMD party machine or an independent financial backer.

We have revised down our GDP growth forecast for the Philippines from 2.8% to 0.9% on the back of a worse-than-expected outlook for the global economy weighing on exports and investment.

While robust remittances and lower fuel prices will boost disposable income levels, we expect private consumption to be hit by a higher propensity to save and thus see it contributing a mere 0.9 percentage points to overall GDP growth in 2009 as compared to levels of 3-5pp in previous years. We thus expect fiscal and monetary policy to remain expansive over the remainder of the year, but see risks to this forecast in the form of rising commodity prices pushing inflation higher.

Infrastructural weakness remains a key obstacle for the Philippines in embarking upon a higher growth path, as reflected in a score of just 40.1 (out of 100) for Infrastructure in our Business Environment Ratings. This drags the country's overall score down to 45.0, placing it 86th out of 167 countries rated by BMI. Until this is addressed, structural bottlenecks will continue to constrain economic activity. Meanwhile, institutional weaknesses such as regulatory inconsistency, lack of transparency and widespread corruption will also have to be addressed if the Philippines is to continue attracting foreign investment. Indeed, the Philippines scores just 37.1 (out of 100) for Institutions in our Business Environment Ratings.

Content

Executive Summary
Still An Outperformer, but Growth and Politics A Concern
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Political Merger Pushing for 'Cha-Cha' beyond 2010?
- We Expect Philippine Politics to Remain in A State of Flux Ahead of The May 2010 Presidential Polls, for Which We View Vice President Noli De Castro as The Frontrunner.
- Long-Term Political Outlook
- Improving Governance: Is Charter Change The Solution?
- The Philippines Faces A Number of Political Challenges over The Coming Years, Which If Handled Successfully Could Improve Governance.
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- among The Outperformers, but Growth Still A Concern
- Although The Philippine Economy Will Be among The Outperformers in Asia in 2009, We Still Have Concerns Going Forward. Tab Le: Economic Activity
- Fiscal Policy
- Budget Deficit to Hit 4%, but Future Consolidation Expected
- Fiscal Policy Will Remain Expansive over The Coming Year as The Philippine Government Attempts to Counter The Effect of A Drawback of External Demand and A Sharp Contraction in Capital Investment. Tab Le: Fiscal Policy
- Monetary Policy
- Disinflation and Weak Consumption Promote Rate Cuts
- We Expect The Bangko Sentral Ng Pilipinas to Remain in Accommodating Mode throughout 2009 as Additional Monetary Stimulus Will Be Needed to Support Domestic Sentiment and Private Consumption. Tab Le: Monetary Policy
- Balance of Payments
- Export Drop Brings Risks to Current Account
- We See No Major Risks for The Philippines' Balance-of-Payments Position as Remittances Should Remain Sufficient to Cover The Deficit in The Trade and Income Accounts. Tab Le: Balance of Payments
Chapter 3: 10-Year Forecast
- The Philippines Economy to 2018
- Weak Infrastructure and Political Unrest to Constrain Growth
- The Enduring Strength of Domestic Demand Will Continue to Ensure That Real Gdp Growth Retains Its Robust Momentum out to 2018, with Annual Economic Expansion Forecast to Average 3.8% over The Coming Ten Years. Tab Le: Philippines Lo Ng-Term Macro Economic Foreca Sts
Chapter 4: Special Report
- The Outlook for Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Oil & Gas
- Executive Summary
- The Philippines Now Ranks Sixth in Bmi's Updated Upstream Business Environment Rating, Reflecting A Reasonable Resource Position and A Better-than-Average Output Growth Outlook.
- Autos
- Executive Summary
- for 2009, We Predict That Cbu Production in The Philippines Will Fall at A Faster Y-O-Y Rate than We Predict for Domestic Sales. Tab Le: Philippines Autos Industry Product Ion & Sa Les
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Philippines Politica L Overview
- Table: Loan-to-Deposit Ratios, Selected States
- Table: Loan Growth (% Chg Y-O-Y), Selected States
- Table: Commercial Banking Business Environment Ratings, Selected States
- Table: Bmi Business & Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Labour Force Quality
- Table: Asia, Fdi Annual Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Table: Philippines Oil & Gas - Historica L Data & Foreca Sts
- Table: Global Assumptions
- Table: Global & Regional Real Gdp Growth
- Table: Commodities