The Philippines is the thirteenth largest country in the world by population (more than 102 million) and is the fifth-largest English-speaking country. It also has one of the youngest populations in the world, with about 38 percent of the population under the age of 18. About 90 percemt of Filipinos between the age of 10 and 64 are functionally literate. Relatively high population growth (nearly two percent annually) will continue to help drive economic growth for the next several years, while also increasing the strain on social spending and the country’s infrastructure.
The United States was the Philippines’ fourth largest country supplier in 2017, with an eight percent share of the country’s import bill.
The Philippine annual GDP growth slowed slightly to 6.7 percent in 2017, from 6.9 percent during the 2016 election year, but remained among the highest in the region. A surge in exports (up 19.5 percent in real terms), stronger manufacturing activity (up 8.4 percent), and a recovery in agricultural harvests from depressed 2016 levels partially offset slower increases in post-election government spending, household consumption, and investments in durable equipment. Philippines GDP increased 6.8 percent during 2018’s first quarter according to preliminary official estimates, spurred by 25 percent real growth in public sector construction outlays and nearly 14 percent growth in other government spending.
Consumer spending remained the major component of domestic demand but expanded more moderately in 2017 (5.9 percent in real terms) compared with 2016 (7.1 percent) as rising inflation and a somewhat higher unemployment rate eroded consumer sentiment. Combined public sector consumption and construction expenditures, up 11 percent in 2016, slowed to 8 percent growth during the 2017 post-election year. Most economists forecast the economy to continue growing in the 6.6 to 6.9 percent range in 2018 and 2019, buoyed by the Duterte government’s more expansionary fiscal stance and $180 billion infrastructure plan (known as “Build Build Build”).
Net foreign direct investment (FDI) inflows, trending upward since the administration of former President Benigno Aquino III, rose by 21.4 percent year-on-year during 2017 to a new record-high of $10 billion. The Philippines nevertheless remains among Southeast Asia’s FDI laggards, with barely four percent of the total FDI stock in the region. The United States -- with an estimated $5.9 billion of FDI in the Philippines as of end 2016 -- ranks among the Philippines’ top investors. The Philippines has improved overall in various competitiveness rankings over the past seven to eight years, though several declines were reported in the past year. However, the inadequate state of infrastructure remains a weak spot and investors also continue to cite government red tape, regulatory uncertainties, a slow judicial system, and corruption as challenges to doing business in the country.
Sustained strong economic growth, resilience to domestic and external shocks, debt management efforts, and tax reform initiatives have been recognized by the “big three” credit rating agencies — Fitch, S&P, and Moody’s – which all currently rate the Philippines a notch above minimum investment grade, the highest achieved thus far in the Philippines’ credit-rating history. Credit rating agencies are closely watching further progress on tax reform, infrastructure spending (particularly for the “flagship” projects), budget implementation, and monetary policy responses to accelerating inflation, foreign exchange rate volatility, and rapid credit growth.
In 2017, U.S.-Philippines bilateral trade amounted to US$20 billion, 10 percent higher than the 2016 level. The Philippines ranked as the 31st largest export destination for U.S. products and the 29th largest source of U.S. merchandise imports. The U.S. trade deficit with the Philippines was at US$3.2 billion.
MISCELLANEOUS INVESTMENT FACTS
U.S. foreign direct investment (FDI) in the Philippines (stock) was $7.1 billion in 2017, a 12.5% increase from 2016. U.S. direct investment in Philippines is led by manufacturing, wholesale trade, and professional, scientific, and technical services.
Philippines FDI in the United States (stock) was $750 million in 2017, up 1.4% from 2016.
Sales of services in the Philippines by majority U.S.-owned affiliates were $4.2 billion in 2016 (latest data available), while sales of services in the United States by majority Philippines-owned firms were $34 million.
Legal & Political
The political situation in the Philippines is stable. Elected in 2016 for a six-year term, President Duterte enjoys high approval ratings and has cracked down on crime, terrorism, and illegal drugs, though his anti-drug campaign has drawn criticism from the international community and human rights groups. Economic stability and business activity have continued largely unabated.
The Duterte administration is attempting to end one of the longest running and most debilitating militant insurgencies in Southeast Asia. Despite liberating Marawi City – a regional hub of 200,000 people in the southern island of Mindanao – from a five-month terrorist siege in October 2017, terrorism remains a threat. The entire island of Mindanao remains under martial law through the end of 2018. Although there are indications of progress in the peace process between the government and the Moro Islamic Liberation Front, with the government prepared to offer greater autonomy for Muslim Mindanao, the prospects remain uncertain and fraught with risks.
While the Philippines’ reputation has shifted from being the sick man of Asia to a bright star in the region, foreign firms continue to face constraints to growth and development and the Philippines is working to improve the inadequate state of infrastructure, regulatory quality, rule of law, anti-corruption enforcement, revenue collection and expenditure management, and human capacity development in health and education. While President Duterte’s harsh rhetoric critical of some countries intermittently creates uncertainty among foreign investors, a strong, well-respected economic team has largely promoted macroeconomic policy continuity as articulated in the administration’s Ten-Point Socio-Economic Agenda.
Treaties & Agreements
The Philippines and the United States belong to a many of the same international organizations, including the United Nations, ASEAN Regional Forum, Asia-Pacific Economic Cooperation (APEC) forum, International Monetary Fund, World Bank, and World Trade Organization. The Philippines is also an observer to the Organization of American States. The Philippines served as chair and host of ASEAN for 2017.
The U.S. and the Philippines hold, every year, bilateral trade discussions under the Trade and Investment Framework Agreement. As of mid- 2018, the United States is also seriously considering the Philippines’ request to enter into a bilateral free trade agreement.