The Philippines Economic Update (April 2018 Edition) published by the World Bank provided an update on key economic and social developments and policies in the country over the past six months. According to this report that, the Philippines was among the top three growth performers in the East Asia region in 2017 with Vietnam and China as top two. This is despite the Philippines’ slightly weakened growth performance of 6.7% for the same year as compared to 6.9% in 2016. The country’s economic growth was attributed to strong exports due to the ongoing global economic recovery. Investment growth significantly slowed because of higher inflation. Prudent fiscal management and continuing implementation of the government’s ongoing tax reform agenda are said to be critical to help secure the country’s fiscal sustainability. However, it is expected that inflationary pressure will intensify in 2018 due to both domestic and external factors. There is also said to be a risk of overheating of the country’s economy due to an environment of increasing fiscal spending and continued high credit growth. The government’s infrastructure budget is set to increase from 13.4% year-on-year in nominal terms in 2017 to 24.5% year-on-year in 2018. This represents a significant effort by the government to increase capital expenditures, and aims to soon break ground on 34 out of 75 flagship projects under the Build, Build, Build infrastructure agenda.
The service sector is expected to remain the main driver of economic growth, with its IT-BPO sub-sector expected to grow at an average annual rate of 5.6%. The manufacturing sector continues to be the preferred destination of both FDI and domestic credit with about a third of foreign equity. The global technological cycle increased exports of machinery, electronics, and integrated circuits. The rise in industrial production and the re-stocking of technology inventory, including mobile phones, were among the most significant determinants of export growth in 2017. China, Malaysia, and the Philippines were among the top ten exporters of integrated circuits and semiconductor devices in 2016. The Philippines’ electronics export revenue growth accelerated from 1.0% in 2016 to 20.5% in 2017 due to a rise in the international demand for integrated circuits, computers, and other electronics, which represent more than half of the country’s merchandise export basket.
The agriculture sector grew at a robust annual rate of 3.9% in 2017. Improving agriculture productivity is said to be key for the Philippines to achieve inclusive growth as the sector employs a disproportionate share of the labor force. Food production is also said to have a significant influence on domestic inflation. An encouraging prospect in the agriculture sector is the ongoing shift to higher value crops with export potential.
According to the report, poverty levels are expected to fall, in line with the Philippines’ growth outlook. The country’s average annual GDP grew by 5.4% and by 3.8% in per capita terms between 2006 and 2015. This robust growth rate helped to push the national poverty rate from 26.6% in 2006 to 21.6% in 2015. However, poverty remains high and the pace of poverty reduction has been slow compared to other East Asian countries.
Moreover, the majority of workers in the Philippines that transition out of agriculture generally end up in low-end service jobs unlike in high-performing East Asian countries with booming economies and manufacturing sectors that provide large numbers of labor-intensive jobs. The country’s labor market has been characterized by a low unemployment rate, a high underemployment rate, and a limited increase in real wages. The labor force has become more educated, and the younger generation is more educated than the older. Educational attainment is positively associated with wage employment in private establishments, the government, and government corporations. It is said that investing in the future means prioritizing investment in both physical infrastructure and human capital, such as in education, skills and health, which will create better employment opportunities, especially for the poor. (Source: Philippines Economic Update, April 2018)