1. Market Research
  2. > Financial Services
  3. > Banking Market Trends
  4. > Philippines Country Risk Report Q1 2017

Philippines Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

The Philippine economy surged forward with 7.0% y-o-y real GDP growth in Q216, and we expect the archipelago's outperformance to continue over the coming quarters on the back of a solid government policy agenda and ongoing booms in the construction and services sectors. We maintain our forecast for the BSP to hold its benchmark RRP facility rate at 3.00% in Q416 and Q117 as the Philippines will likely continue to enjoy favourable growth and inflation dynamics in the coming months. However, we note that the inflation cycle has likely turned and risks are tilted to the upside going into 2017. We expect the Philippine peso to weaken further against the US dollar in the coming months due to market uncertainty over Duterte's increasingly unorthodox policies. Over the longer term, we hold a slight appreciatory bias on the currency as healthy growth-inflation dynamics facilitated by a large and steady remittances inflow will be supportive of the currency. We expect the security situation in the Philippines to worsen over the coming months due to the Duterte administration's heavy-handed approach on crime and drugs, as well as the military's conflict with the Abu Sayyaf militant group in the south. The government's crackdown on these outlaws is likely to lead to greater reprisals and an increase in frequency of terror attacks. Accordingly, we have downgraded Philippines's Short-Term Political Risk Index score to 64.6, from 66.3 previously. Major Forecast Changes We expect the Philippines' current account surplus as a share of GDP to narrow significantly to 1.5% in 2016 and 0.9% in 2017, from 2.9% in 2015. However, the deterioration of the Philippines' external accounts should not be a major cause for alarm given that the surge in imports so far has been largely driven by stronger manufacturing, construction and investment activities. We believe that a significant portion of these imports will likely be channelled towards fixed capital formation which should contribute to headline growth. The country also boasts a healthy foreign reserves buffer and steady remittances inflow, which should help preserve external stability.

Table Of Contents

Philippines Country Risk Report Q1 2017
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Major Forecast Changes.................................................................................................................................................................5
Key Risks.........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook........................................................................................................................................ 8
Outperformance To Continue With Strong Policy Agenda.........................................................................................................8
The Philippine economy surged forward with 7.0% y-o-y real GDP growth in Q216, and we expect the archipelago's outperformance
to continue over the coming quarters on the back of a solid government policy agenda and ongoing booms in the construction and
services sectors.
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: ECONOMIC ACTIVITY.................................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.........................................................................................................................................9
TABLE: FIXED INVESTMENT FORECASTS............................................................................................................................................................9
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Fiscal Policy And Public Debt Outlook.................................................................................................................. 10
Expansionary Fiscal Plans A Boon For The Economy..............................................................................................................10
The proposed expansionary 2017 budget marks a significant change in fiscal stance by the new government and should be positive
for economic growth as the efficiency of the public procurement process has improved considerably since Aquino's time. A tax reform
package was also proposed alongside the budget, which should help to improve revenue growth in the coming years, supporting
continued fiscal stability. Nonetheless, we have downgraded our forecasts for the Philippines' budget deficit in 2016 and 2017 to 2.0
%and 2.7% respectively, to reflect revenue stagnation in the January-July period and a change in the government's fiscal stance.
Structural Fiscal Position........................................................................................................................................ 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.............................................................................................................................12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................12
External Trade And Investment Outlook................................................................................................................ 13
External Surplus To Narrow, But Little Cause For Concern.....................................................................................................13
We expect the Philippines' current account surplus as a share of GDP to narrow significantly to 1.5% in 2016 and 0.9% in 2017, from
2.9% in 2015. However, the deterioration of the Philippines' external accounts should not be a major cause for alarm given that the surge
in imports so far has been largely driven by stronger manufacturing, construction and investment activities. We believe that a significant
portion of these imports will likely be channelled towards fixed capital formation which should contribute to headline growth. The country
also boasts a healthy foreign reserves buffer and steady remittances inflow which should help preserve external stability.
Outlook On External Position.................................................................................................................................. 14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS.......................................................................................................................................14
TABLE: MAIN IMPORT AND EXPORT PARTNERS...............................................................................................................................................14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................14
TABLE: MAIN IMPORTS AND EXPORTS............................................................................................................................................................... 15
Monetary Policy........................................................................................................................................................ 15
Rates To Remain On Hold Till Q117............................................................................................................................................15
We maintain our forecast for the BSP to hold its benchmark RRP facility rate at 3.00% in Q416 and Q117 as the Philippines will likely
continue to enjoy favourable growth and inflation dynamics in the coming months. However, we note that the inflation cycle has likely
turned and risks are tilted to the upside going into 2017.
Monetary Policy Framework.................................................................................................................................... 16
TABLE: MONETARY POLICY FORECASTS..........................................................................................................................................................16
Currency Forecast.................................................................................................................................................... 17
PHP: Near-Term Weakness But Long-Term Appreciatory Bias................................................................................................17
We expect the Philippine peso to weaken further against the US dollar in the coming months due to market uncertainty over Duterte's
increasingly unorthodox policies. Over the longer term, we hold a slight appreciatory bias on the unit as healthy growth-inflation
dynamics facilitated by a large and steady remittances inflow will be supportive of the currency.
TABLE: BMI CURRENCY FORECAST....................................................................................................................................................................17
Chapter 2: 10-Year Forecast................................................................................................................... 19
The Philippine Economy To 2025........................................................................................................................... 19
Potential For Higher Investment Rate To Sustain Economic Growth......................................................................................19
Ongoing political and economic reforms, as well as increasing foreign investor interest, will help speed up investment growth in the
Philippines. This will in turn enable the country to sustain its strong growth trajectory over the coming years. As such, we forecast the
Philippines' real GDP growth to average 6.0% over the period from 2016 to 2025, up from our initial forecast of 5.2%.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................19
Chapter 3: Political Outlook................................................................................................................... 23
SWOT Analysis......................................................................................................................................................... 23
BMI Political Risk Index........................................................................................................................................... 23
Domestic Politics..................................................................................................................................................... 24
Security Situation Could Worsen In Coming Months................................................................................................................24
We expect the security situation in the Philippines to worsen over the coming months due to the Duterte administration's heavy-handed
approach on crime and drugs, as well as the military's conflict with the Abu Sayyaf militant group in the south. The government's
crackdown on these outlaws is likely to lead to greater reprisals and an increase in frequency of terror attacks. Accordingly, we have
downgraded Philippines's Short Term Political Risk Index Score to 64.6, from 66.3 previously.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................24
Long-Term Political Outlook................................................................................................................................... 25
Stable Politics For Now, But Political Challenges Remain.......................................................................................................25
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 4: Operational Risk................................................................................................................... 27
SWOT Analysis......................................................................................................................................................... 27
Operational Risk Index............................................................................................................................................ 27
Operational Risk....................................................................................................................................................... 28
TABLE: OPERATIONAL RISK SCORE...................................................................................................................................................................28
Business Crime........................................................................................................................................................ 29
TABLE: BUSINESS RESPONSE TO RISK IN THE.................................................................................................................................................29
Government Intervention......................................................................................................................................... 32
TABLE: BUSINESS TAXES.....................................................................................................................................................................................32
TABLE: PERSONAL INCOME TAX.........................................................................................................................................................................34
Chapter 5: BMI Global Macro Outlook................................................................................................... 37
Global Macro Outlook.............................................................................................................................................. 37
Broad Recovery But Three Notes Of Caution.............................................................................................................................37
TABLE: GLOBAL FORECASTS, 2015-2020...........................................................................................................................................................37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %....................................................................................................................................38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...................................................................................................................................39
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................41

View This Report »

Get Industry Insights. Simply.

  • Latest reports & slideshows with insights from top research analysts
  • 24 Million searchable statistics with tables, figures & datasets
  • More than 10,000 trusted sources
24/7 Customer Support

Talk to Veronica

+1 718 514 2762

Purchase Reports From Reputable Market Research Publishers
China Banking IT Solutions Market Shares, 2015: Market Maintains Stable Growth

China Banking IT Solutions Market Shares, 2015: Market Maintains Stable Growth

  • $ 7500
  • Industry report
  • October 2016
  • by IDC

"China's banking industry is facing three major challenges -- economic slowdown, interest rate liberalization reform, and internet finance, accompanied by dramatic changes in the banking business environment," ...

Blockchain Technology Market by Provider, Application, Organization Size, Vertical, and Region - Global Forecast to 2021

Blockchain Technology Market by Provider, Application, Organization Size, Vertical, and Region - Global Forecast to 2021

  • $ 5650
  • Industry report
  • October 2016
  • by MarketsandMarkets

“Need for transparency and immutability is driving the growth of the blockchain technology market” MarketsandMarkets estimates the global blockchain technology market to grow from USD 210.2 million ...

China Banking Industry IT Solutions Forecast, 2016-2020

China Banking Industry IT Solutions Forecast, 2016-2020

  • $ 5500
  • Industry report
  • September 2016
  • by IDC

"China's banking industry is facing three major challenges -- economic slowdown, interest rate liberalization reform, and internet finance, accompanied by dramatic changes in the banking business environment. ...

Uk Wealth Report 2016

September 2016 $ 4995

ref:plp2016

Reportlinker.com © Copyright 2016. All rights reserved.

ReportLinker simplifies how Analysts and Decision Makers get industry data for their business.