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Philippines Business Forecast Report Q2 2013

  • Publication Date:January 2013
  • Publisher:Business Monitor
  • Product Type: Report
  • Pages:49
  • ISBN:187805

Philippines Business Forecast Report Q2 2013



Core Views

Following estimated growth of 6.0% in 2012, we forecast the Philippine
economy to expand by 5.0% in 2012. Leading the way forward,
we envisage a strong comeback in fixed capital growth in 2013, and
believe that this will mark the beginning of a longer-term resurgence
in investment.
Inflation ended 2012 at a benign 2.9%, but we retain our end 2013
inflation forecasts of 4.0% as price pressures are expected to rise
gradually as a result of strong economic activity and loan growth
on the back of easy monetary policy. At the same time, we do not
expect the Bangko Sentral ng Pilipinas (BSP) to raise its benchmark
interest rate before the end of 2013. While we are currently forecasting
for the central bank's benchmark interest rate to end 2013 at its
current 3.50%, and we continue to believe that risks to this forecast
are to the downside, with additional rate cuts not out of the question.

Despite the fact that the Philippines has passed another expansionary
budget for 2013, we expect the budget deficit to widen to come
in at a manageable 2.0% of GDP in 2013. While spending continues
to be limited by administrative difficulties, revenue growth will be
supported by the government's increasing tax collection efficacy and
the introduction of a wide-ranging sin tax. Notably, we believe that
2013 will be the year in which the Philippines achieves an investment
grade rating from at least one of the three major ratings agencies in
view of the country's improved growth outlook and the government's
increasingly consolidated fiscal position.


Major Forecast Changes

We have upgraded our 2012 and 2013 GDP growth forecasts to
6.0% and 5.0% respectively in light of the economy's impressive
trade performance and our expectations for an investment revival
in 2013
Following the BSP's rate cut to 3.50%, we expect the central bank
to keep its key policy rate on hold for a potentially extended period
as growth continues to outperform amid a dovish inflationary environment.
We have upgraded our end 2013 forecast for the Philippine peso
to PHP41.50/US$, and note that risks to this forecast remain to the
upside given the large scale of the US Federal Reserve's QE3 initiative
and continued strong hot money inflows into the Philippines.


Key Risks To Outlook


Risks to our 2013 growth forecast are to the upside in the event
that exports continue to outperform despite continued weakness
in external demand. Risks to our peso outlook are likewise to the
upside, as the currency could continue to outperform in the event
that hot money outflows hold up for a longer than expected period.
Executive Summary. 5
Core Views 5
Major Forecast Changes
Key Risks To Outlook
Chapter 1: . 7
Political Outlook. 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Strategic Relations To Be Bolstered Following Abe's Accession8
In view of China's ongoing ascendancy to the position of Asia's regional hegemon, the Philippines has found a natural partner in Japan
as a potential counterbalance in increasingly contentious territorial disputes with the mainland. While we expect Philippine security
relations with Japan and the US to continue to strengthen, we note that territorial disputes between China and the Philippines are as of
yet unlikely to cause anywhere near the scale of economic damage seen in the Japan-China row, even in the relatively likely event that
confrontation reemerges.
TABLE: PHILIPPINES POLITICAL OVERVIEW .8
Long-Term Political Outlook 9
Prospects For Improving Governance.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
instances of turmoil.
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings. 11
Fiscal Policy. 12
Government Continues To Consolidate Fiscal Position.12
Despite the fact that the Philippine government has approved yet another expansionary budget for 2013 (with spending set to climb by
an estimated 10.5%), we continue to find that the government's debt position is on a positive trajectory. We believe that following an
estimated fiscal deficit equivalent to 2.1% of GDP in 2012, the shortfall is likely to tick up only slightly in 2013 to 2.2%, remaining within
manageable parameters.
TABLE: FISCAL POLICY.12
Monetary Policy. 14
BSP Casting A Wary Eye Towards Hot Money Inflows14
With headline inflation remaining well within the Bangko Sentral ng Pilipinas (BSP)'s target range, we expect the central bank to retain
a slight easing bias, at least through H113, although we do not expect any further interest rate cuts at this time. While inflationary
pressures are not presently a concern, we expect consumer price appreciation to accelerate moderately throughout 2013 amid the
country's environment of easy monetary policy and solid economic growth, and we therefore retain our end-year inflation forecast of
4.0%.
TABLE: MONETARY POLICY.14
Balance Of Payments 15
Remittances Rolling On, But Hot Money Inflows Pose A Challenge15
The Philippine economy continues to benefit from strong remittance growth as the vast diaspora of overseas Filipino workers provides
a robust and consistent source of foreign income. On the other hand, record hot money inflows pose an increasing risk to both the
peso and equities, and the potential for a rapid reversal of these inflows may spur the Bangko Sentral ng Pilipinas (BSP) to institute a
minimum holding period on portfolio investments. Moreover, we continue to find that Philippine equities are expensive at their current
levels, and would look to re- initiate a bearish position in the Philippines Composite Index (PCOMP) should the index break below
technical support.
TABLE: CURRENT ACCOUNT16
Business Monitor International Ltd www.businessmonitor.com 3
Contents
Economic Activity 18
Long-Term Limitations Remain In Play18
By nearly all accounts, the Philippine economy experienced a solidly above consensus year in 2012, expanding by at least 6.0% even
as the rest of the region slowed. While we expect headline growth to moderate somewhat to 5.0% in 2013, we believe that the economy
will continue to be an outperformer in the region on the back of strong investment activity and a resilient consumer. However, we also
note that the Philippines will need to more effectively address its structural inefficiencies and barriers to foreign investment in order for
the economy to achieve consistently high rates of growth.
TABLE: ECONOMIC ACTIVITY.18
Chapter 3: 10-Year Forecast. 21
The Philippine Economy To 2022. 21
Uncovering A Forgotten Gem?.21
The Philippines holds significant economic growth potential and may come into the investment spotlight within the next few years.
Although the country is currently hampered by political instability and poor investor perception, we believe President Benigno Aquino III
will be able to make progress on both fronts. 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: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook. 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS26
TABLE: BMI LEGAL FRAMEWORK RATING.27
TABLE: LABOUR FORCE QUALITY.28
Infrastructure. 29
TABLE: ASIA - ANNUAL FDI INFLOWS.29
TABLE: TRADE AND INVESTMENT RATINGS30
Market Orientation. 31
TABLE: TOP EXPORT DESTINATIONS (US$MN).31
Operational Risk 32
Chapter 5: Key Sectors 33
Defence 33
TABLE: PHILIPPINES' AVAILABLE MANPOWER FOR MILITARY SERVICES, 2010-2017. 39
TABLE: PHILIPPINES' GOVERNMENT DEFENCE EXPENDITURE, 2010-2017.39
Food & Drink 40
TABLE: MASS GROCERY RETAIL MARKET BY ESTIMATED NUMBER OF OUTLETS. 41
TABLE: AVERAGE SALES PER OUTLET BY FORMAT - 2012.41
TABLE: MASS GROCERY RETAIL SALES BY FORMAT (PHPBN)41
TABLE: MASS GROCERY RETAIL SALES - HISTORICAL DATA & FORECASTS, 2010-2017 42
TABLE: SALES BREAKDOWN BY RETAIL FORMAT TYPE42
Other Key Sectors. 45
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS.45
TABLE: AUTOS SECTOR KEY INDICATORS45
TABLE: PHARMA SECTOR KEY INDICATORS.45
TABLE: TELECOMS SECTOR KEY INDICATORS46
TABLE: FREIGHT SECTOR KEY INDICATORS.46
Chapter 6: BMI Global Assumptions. 47
Global Outlook. 47
Growth May Be Turning The Corner 47
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS.48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%) 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS49
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