Philippines Business Projection Industry Update Quarter 3 2012

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
Midterm Elections Set To Bolster Aquino Administration
The Philippines' upcoming midterm elections are likely to reflect President Benigno Aquino III's remarkable popularity, with the incumbent's
Team PNoy coalition set to perform very well in the race for the 12 senate seats that are up for grabs. As such, we believe that Aquino's
administration will be bolstered, which will help to solidify the government's positive trajectory in terms of improving the country's troubled
business environment and stamping out widespread corruption. However, we also note that the 2016 general elections remain a relative
mystery, and as such will constitute a much more thorough challenge to the Philippines' positive political story.
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook 9
Prospects For Improving Governance
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
Solid Foundations For An Investment Boom
Stability on the political front, improvements in cleaning up corruption and strengthening the business environment, and prudent
macroeconomic policies look set to underpin continued strong growth in the Philippine economy. Notwithstanding the risks, which come
in the form of another global credit crunch and/or a collapse in the country's main trading partner, Japan, we are forecasting GDP to
grow by an average of 11.2% in US dollar terms over the next five years.
TABLE: ECONOMIC ACTIVITY 14
Monetary Policy 16
Macroprudential Measures Remain Sufficient For BSP
The Philippines continues to benefit from a healthy balance of inflationary forces and economic growth, as reflected by the headline
consumer price index's decline from 3.4% y-o-y to 3.2% in March. As a result, we believe that Bangko Sentral ng Pilipinas will leave its
benchmark interest rate at its all-time low of 3.50% throughout 2013, instead continuing to focus on more finely tuned macroprudential
measures in an attempt to discourage potentially destabilising hot money inflows.
TABLE: MONETARY POLICY 17
Fiscal Policy 18
Investment-Grade Rating Long Overdue
In line with our expectations, the Philippines received its first investment-grade rating from Fitch Ratings on March 27, marking the
country's solid fiscal trajectory, improving political stability and strong economic growth prospects. While we expect similar upgrades
from the remaining ratings agencies over the coming quarters, we note that the country's improved credit profile is already largely priced
into the credit default swap markets, and further improvements with regards to Philippine sovereign risk are likely to manifest more
slowly now that the basic criteria have been met.
TABLE: FISCAL POLICY 18
Balance Of Payments 19
Trade Prospects Positive Despite Tough January
Philippine export growth came in below consensus estimates in January, posting the first y-o-y decline since September 2012 as
a result of surprisingly poor electronics shipments. Nevertheless, we believe that the Philippines may still see a transitory, cyclical
recovery in electronics exports in line with a boost in regional trade and improved demand dynamics within the semiconductor industry.
Additionally, the Philippines' strong remittance position continues to power the country's modest but consistent current account surplus,
and we expect this dynamic to remain in place over the long term.
TABLE: CURRENT ACCOUNT 20
Chapter 3: 10-Year Forecast 21
The Philippine Economy To 2022 21
Uncovering A Forgotten Gem?
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 BUSINESS AND OPERATION RISK RATINGS 26
Infrastructure 28
TABLE: BMI LEGAL FRAMEWORK RATING 28
TABLE: LABOUR FORCE QUALITY 29
Market Orientation 30
TABLE: ASIA - ANNUAL FDI INFLOWS 30
Operational Risk 31
TABLE: TOP EXPORT DESTINATIONS 31
Chapter 5: Key Sectors 33
Freight Transport 33
TABLE: CARGO, 2010-2017 34
TABLE: AIR FREIGHT, 2010-2017 35
TABLE: MARITIME FREIGHT, 2010-2017 35
Autos 37
TABLE: AUTO SALES, 2011-2017 38
TABLE: AUTO PRODUCTION, 2011-2017 39
Other Key Sectors 41
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS 41
TABLE: PHARMA SECTOR KEY INDICATORS 41
TABLE: FOOD & DRINK SECTOR KEY INDICATORS 41
TABLE: DEFENCE & SECURITY SECTOR KEY INDICATORS 42
TABLE: TELECOMS SECTOR KEY INDICATORS 42
TABLE: FREIGHT SECTOR KEY INDICATORS 42
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Lowering Our US And Eurozone Growth Forecasts 43
TABLE: GLOBAL ASSUMPTIONS 43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 44
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 45

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