Country Forecast Philippines September 2017 Updater

Country Forecast Philippines September 2017 Updater

  • September 2017 •
  • Report ID: 1698460 •
  • Format: PDF


  • The president, Rodrigo Duterte, has completed the first year of a consti-tutionally mandated single six-year term. Although he remains popular, various controversial decisions mean that there is a risk that he will expend his political capital quickly. Yet, his consolidated position in Congress (the legislature) will protect him for most of the forecast period (2017-21).
  • Economic reforms will continue to take a back seat to the president's anti-crime efforts. The Economist Intelligence Unit believes that he will complete his term, provided that he does not deplete his political capital through controversial policies such as the so-called war on drugs.
  • Divisive and populist, Mr Duterte has made several contro-versial statements, some of which have tested ties with key foreign partners in the West, as well as the traditionally pro-US political elite at home. His rhetoric has made the Philippines' allies nervous, but has opened the door for the country's ties with China to recover despite the nations' territorial disputes in the South China Sea, which will not be resolved in 2017-21.
  • The budget balance will remain in deficit throughout 2017-21 as the government increases spending on infrastructure and essential social services; the administration has raised the cap on the fiscal shortfall to the equivalent of 3% of GDP, from 2% previously. We forecast that the deficit will remain relatively stable, averaging the equivalent of 2.3% of GDP in the next five years.
  • The Bangko Sentral ng Pilipinas (BSP, the central bank) will look to "normalise" monetary policy gradually from 2018 onwards, in part to limit inflationary risks stemming from the weakening peso. The BSP has enough room to manoeuvre, as its accommodative stance has not changed since 2014.
  • Real GDP growth will average 6.2% a year in 2017-21. Private con-sumption will remain a key pillar of economic expansion during 2017-21, growing at an average annual rate of 5.7%. Investment growth will remain robust but will moderate, to an average of 7.1% a year (from 25.4% in 2016), as businesses will adopt a more cautious approach owing to Mr Duterte's erratic style of gover-nance and the administration's com-placency on economic policy issues.
  • In recent years the trade deficit has widened considerably on the back of strong domestic demand for imported goods. Consequently, although the current account has stayed in the black, the surplus has declined significantly. We expect the surplus to average the equivalent of 0.8% of GDP in 2017-21, down from 2.7% in 2012-16, as the merchandise trade deficit will remain wide.


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