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Philippines Business Forecast Report Q3 2014

  • April 2014
  • -
  • Business Monitor International
  • -
  • 44 pages

Core Views

We forecast real GDP growth of 6.3% for the Philippines in 2014, as we expect domestic demand to remain strong and export sector growth to see a modest rebound this year. We believe the Bangko Sentral ng Pilipinas (BSP) will raise its benchmark reverse repo rate by 50 basis points to 4.00% by end-2014, as the continued strong domestic liquidity growth, growing demand-side pressures and interest rate normalisation in the US that we expect to occur in 2015, have further narrowed the scope for continued accommodative monetary policy in the Philippines.
We are cautiously optimistic that the mild revival in the semiconductor sector and the rapidly growing business process outsourcing (BPO) industry will lead a modest rebound in the Philippine export sector, and we are therefore forecasting a modest 5.0-5.5% expansion in real terms for exports in 2014.

Ongoing fiscal reform efforts have so far paid off, as tax revenues as a share of GDP have risen, while government expenditure as a share of GDP has declined. We forecast the fiscal deficit to come in at 1.4% of GDP in 2014, and public debt as a share of GDP to decline to an estimated 46.9% in the same year, from 49.2% in 2013.

Major Forecast Changes

Our in-house valuation model indicates that the peso is currently trading at or below its fair valuation. In combination with the still positive economic growth outlook, strong current account surplus and large reserves, we expect the Philippine peso will strengthen towards PHP43.50/USD over the next three to six months, and will average PHP44.00/USD in 2014.

Table Of Contents

Philippines Business Forecast Report Q3 2014
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Sustained Momentum For Peace And Growth In Mindanao 8
We remain optimistic about the peace process in Mindanao, as it is gaining momentum with the ongoing formulation of the Bangsamoro
Development Plan (BDP). However, as the peace process is still in the nascent stages, we maintain our short-term political risk
rating for the Philippines at 71.2. That said, we may look to upgrade the rating in the future should further positive developments be
forthcoming.
Table: Political Overview 8
Long-Term Political Outlook 9
Prospects For Improving Governance 9
The Philippines faces a number of political challenges over the coming years that, if handled successfully, could improve governance.
However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent
instances of turmoil.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Strong Growth Momentum To Continue In 2014 14
We are forecasting real GDP growth of 6.3% for the Philippines in 2014, as we expect domestic demand to remain strong and export
sector growth to see a modest rebound this year. While we are optimistic about its growth prospect, we remain wary of any renewed
global volatility that will pose downside risks to our growth forecast.
TABLE: ECONOMIC ACTIVITY 14
Fiscal Policy 16
Further Fiscal Account Consolidation Ahead 16
Ongoing fiscal reform efforts have so far paid off, as tax revenues as a share of GDP have risen, while government expenditure as a
share of GDP has declined. We are forecasting the fiscal deficit to come in at 1.4 % of GDP in 2014, and public debt as a share of GDP
to decline to an estimated 46.9% in the same year, from 49.2% in 2013.
TABLE: FISCAL POLICY 16
Monetary Policy 17
Potential Rate Hikes On The Cards 17
We forecast the Bangko Sentral ng Pilipinas (BSP) will raise its benchmark reverse repo rate by 50 basis points to 4.00% by end-
2014, as the continued strong domestic liquidity growth, growing demand-side pressures and interest rate normalisation in the US
that we have projected to occur in 2015, have further narrowed the scope for continued accommodative monetary policy in the
Philippines.
TABLE: MONETARY POLICY 17
Balance Of Payments 18
Modest Export Rebound Ahead 18
We are cautiously optimistic that the mild revival in the semiconductor sector and the rapidly growing business process outsourcing
(BPO) industry will lead a modest rebound in the Philippine export sector, and we are therefore forecasting a modest 5.0-5.5
%expansion in real terms for exports in 2014. Alongside a likely recovery in exports, the continued strength of remittance inflows will
provide further support to the current account picture, while at the same time bolstering our view of a strengthening peso over the next
three-to-six months.
TABLE: CURENT ACOUNT 19
Chapter 3: 10-Year Forecast 21
The Philippine Economy To 2023 21
Uncovering A Forgotten Gem? 21
The Philippines holds significant economic growth potential and has begun to come into the investment spotlight as a result. Although
the country has in the past been hampered by political instability and poor investor perception, we believe President Benigno Aquino
III has been able to make progress on both fronts. Moreover, consumerism is expected to pick up in a big way towards the end of the
decade as income levels rise.
TABLE: Long -Term Macroeconomic Forecasts 21
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
Institutions 26
Table : BMI Busines And Operation Ris k Ratings 26
Table : BMI Legal Framewor k Rating 27
Table: Labour Force Quality 28
Infrastructure 29
TABLE: ASIA - ANUAL FDI INFLOWS 29
TABLE: Top Export Destinations (USDMN) 30
Market Orientation 31
Operational Risk 32
Chapter 5: Key Sectors 33
Defence 33
TABLE: Philippines' Defence Expenditure, 2014-2018 34
Freight Transport 38
TABLE: Air Freight, 2011-2018 39
TABLE: Cargo, 2011-2018 39
TABLE: Maritime Freight , 2011-2018 39
Other Key Sectors 41
TABLE: Oil and Gas Sector Key Indicators 41
TABLE: Telecoms Sector Key Indicators 41
TABLE: Infrastructure Sector Key Indicators 41
TABLE: Pharma CEUTICALs and HEALTHCARE Sector Key Indicators 42
TABLE: Autos Sector Key Indicators 42
TABLE: Food and Drin k Sector Key Indicators 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Chinese Economy Under Pressure 43
Table : Global Assumptions 43
Table: Developed States, Real GDP GrowtH, % 44
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 44
Table : Emerging Mar kets , Real GDP Growth , % 45

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