Business Consulting BlogHow is the Philippines defying the international economy?

October 18, 2013

Being the Asia’s fastest growing economy in the first half of 2013, the Philippines is defying the international economy and its GDP growth reflects the resilience of its economy despite the slowdown of China, the European recession and the uncertainty around USA and the policy of the Federal Reserve.

Consumers show confidence

From April to June 30, the economy has expanded at an annual rate of 7 5% keeping exceeding the most optimistic forecasts of the financial institutions to the country.  There are several factors that have been boosting the current growth but the main explanation to this economic performance is similar to the one behind the growth of the trillion-dollar economy of Indonesia – strong domestic demand and less dependence on export and the volatility of external trade. Local consumers are demanding more services and goods, what is explained by the high confidence in the economy and current political stability.

Infrastructure Boost

Construction sector had the highest growth – 32,5%, sustained by the infrastructure program of Aquino administration. Large infrastructure projects (Philippines will increase infrastructure spending to 5% of GDP) are expected to heavily contribute to the goal of creating 1 million jobs annually.

With a recurrent underinvestment in physical infrastructure, President Aquino has clearly understood the threat and the negative impact of the poor communications and transportation sector in the Filipino economy, ranked below Malaysia and Singapore and similar to Indonesia and Vietnam.

Philippines Growth: the revitalized Manufacturing Sector

The construction growth was followed by the manufacturing with 9,7% and services with 7% while remittances still occupy the traditional important role and with the Peso devaluation, it grew  7% year-on-year.

What is imperative to highlight is the contribution and revitalization of the manufacturing sector with companies such as B/E Aerospace, the US based aircraft cabin interior parts manufacturer building its factories in the Philippines.  Also, the listed beverage bottler Pepsi-Cola Products Philippines  and San Miguel plan to tap into strong request by expanding its facilities.

The higher costs in China have undoubtedly contributed to this industrial growth but we should not despise the importance of the tax incentives and the quality of the labor force in the Philippines.

Home to the major electronic and car manufacturers, a more developed and influence manufacturing sector is vital for the economic development of the Philippines.  As Erik Reinert shows in his recent book  How Rich Countries Got Rich and Why Poor Countries Stay Poor :” From the rise of England in the 19th century, to the rise of the US, Germany, Japan and the USSR in the 20th, to the newly industrializing countries like Korea, Taiwan, and now China, manufacturing has been the key to prosperity”.

Concluding, the Philippines is definitely the rising star of Asia and there are unlimited business opportunities in this economy. Dealing with companies from several different business sectors and countries, as business consultants we can feel the growing optimism and affirm that the Philippines is on the right track to become one of the largest economies in the world. Problems as corruption, high poverty rate and red tape still remain but the endless potential of this economy and its business opportunities makes us believe in the accuracy of Goldman Sachs and HSBC forecasts that place Philippines within the 16 largest economies in the world in 2050.


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