Country Forecast Philippines October 2017 Updater

Country Forecast Philippines October 2017 Updater

  • October 2017 •
  • Report ID: 1698655 •
  • Format: PDF


  • The president, Rodrigo Duterte, will complete his constitutionally mandated single six-year term in office. Despite the strong support he currently enjoys in Congress (the legislature), his position is not unassailable. Party lines are fluid in the Philippines and the backing Mr Duterte currently enjoys in Congress could wane quickly amid his already-declining public popularity.
  • Economic reforms will continue to take a back seat to the president's anti-crime efforts and his broader domestic security agenda. The prospects for long-term peace and stability in Mindanao, where the government has long been fighting an Islamist insurgency, remain bleak. The imposition of martial law alone will not be enough to solve the region's security issues.
  • 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 2018-22.
  • The budget balance will remain in deficit throughout 2018-22 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 2.2% 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 2015.
  • Real GDP growth will average 6.1% a year in 2018-22. Private con-sumption will remain a key pillar of economic expansion during this period, growing at an average annual rate of 5.8%. Investment growth will remain robust but will moderate, to an average of 6.4% a year, as businesses will adopt a more cautious approach owing to the president'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 0.9% of GDP in 2018-22, down from 2.2% in 2013-17, as the merchandise trade deficit will remain wide.






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