Country Report Philippines July 2009

Outlook for 2009-10

• The president, Gloria Macapagal Arroyo, will remain in power until her term ends in June 2010. She is ineligible to stand in next year's presidential elections.
• Ms Macapagal Arroyo will continue with constitutional reforms to replace the presidential system of government with a parliamentary one. The opposition will view such changes as a ruse by the president to hold on to power.
• The Economist Intelligence Unit expects the economy to shrink by 1.8% in 2009, owing to a large contraction in exports and investment. Remittance inflows are also likely to fall after years of rapid growth.
• The budget deficit will widen P250bn (US$5bn) in 2009, equivalent to 3.4% of GDP, as a result of falling tax revenue owing to the economic downturn.
• Inflation will slow to an average of 2.9% in 2009, owing to weaker domestic demand and lower international commodity prices.
• The current-account surplus will widen this year, to 3.8% of GDP, owing to lower prices for commodity imports, which will lead to a narrowing of the merchandise trade deficit.

Monthly review

• Supporters of Ms Macapagal Arroyo in the House of Representatives (the lower house) are pushing ahead with their proposal to amend the constitution before Congress (the legislature) adjourns in February 2010.
• On May 28th the two leading pro-administration parties, Lakas and Kampi, merged to form a new party, Lakas-Kampi CMD, ahead of the presidential and legislative elections in 2010.
• The government has lowered its GDP growth forecast to 0.8-1.8% in 2009, from 3.1-4.1% previously.
• On May 28th the Bangko Sentral ng Pilipinas (the central bank) cut its key interest rates for the fifth time since December 2008.
• Real GDP grew by just 0.4% year on year in the first quarter of 2009, down from 2.9% in the fourth quarter of 2008. The slowdown resulted from trends in domestic demand that owe their origin to weakness in the global economy.
• In May the headline year-on-year rate of consumer price inflation fell by more than one percentage point to 3.3%, the lowest rate since November 2007.
• Exports were down by 36.4% year on year in January-April (to US$10.7bn), while imports shrank by 34.3% in January-March (to US$9.6bn).

Source: Country Report