Core Views
We maintain our view that the Philippine economy will register respectable growth of 5.0% in 2011, driven by resurgent growth in capital formation, before moderating to 4.5% in 2012 as authorities continue to tighten liquidity. The recent trend of accelerating consumer price inflation will not be a major problem, as we expect price increases to peak in H211, with moderation persisting into 2012. We believe the Bangko Sentral ng Pilipinas will raise the reverse repurchase rate and repurchase rate by another 50 basis points to 5.00% and 7.00% respectively.
Moreover, we expect oil prices – a key contributor to headline inflation – to moderate, further supporting our relatively dovish view. We expect remittance inflow growth to decelerate to 4.5% in 2011, remaining well above positive territory owing to diversification of sources of funds over the past few years. That said, the forecast figure is still considerably lower than the 9.8% print recorded in 2010, mainly on account of our expectations of further weakness in the US economy.
I t is unlikely that Manila will cause an escalation in tensions surrounding the Spratlys Islands dispute. Indeed, we believe the Philippines is aware of its military deficiencies (especially when compared with China) as well as the uncertainty over the US’s posture, encouraging caution on its part.
Major Forecast Changes
We have adjusted down our real GDP forecast for 2011 marginally to 5.0% (from 5.1% previously) primarily owing to effects of rebasing, although we emphasise that our fundamental view remains unchanged.
Key Risks To Outlook
Downside Growth Risks From Spiralling Inflation: Should food prices and oil prices maintain their upward march, we believe the consumer may be squeezed, which will hurt private consumption growth.
Upside Long-Term Growth Risks From Structural Reforms:
Foreign direct investment levels are still very low compared with its peers in the region. Should the government successfully embark on reforms, we may see a sustained increase in investment, boosting longer-term growth.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Political Inactivity On Health Bill Harmful For Long-Term Outlook
The continuing political inactivity on the Reproductive Health Bill (designed to address the Philippines’
persistent population pressures) should keep its long-term development prospects depressed
Foreign Policy 9
Manila Unlikely To Escalate Spratly Dispute
Despite the recent deployment of the largest warship against the backdrop of increasing tensions over the
disputed Spratly Islands, we believe that Manila’s posture will remain comparatively dovish in order to mitigate
unnecessary escalation
Long-Term Political Outlook 10
Prospects For Improving Governance
The Philippines faces a number of political challenges over the coming years which, if handled successfully,
could improve governance
Table: Philippines Political Overview11
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity I 14
Moderation In Growth Under Way
Following the Philippine economy’s 49% expansion in Q111 (from 61% in the previous quarter), we maintain
our view that growth will moderate in 2011
Table: ECONOMIC ACTIVITY14
Monetary Policy 16
Inflation To Remain Manageable
Philippine consumer price inflation came in at 46% y-o-y in June, slightly higher than the 45% figure recorded
in May
Table: MONETARY POLICY16
Banking Sector 17
Respectable Growth Ahead For Lenders
We believe Philippine banks should experience healthy growth in 2011, driven by robust demand for both
consumer and production loans
Economic Activity II 19
Slowdown Seen In Remittance Growth
We expect remittance growth to remain positive amid persistent diversification of sources of inflows, coming in
at 45% in 2011, though considerably lower than the 98% print registered in 2010
Chapter 3: 10-Year Forecast 21
The Philippine Economy To 2020 21
Uncovering A Forgotten Gem?
The Philippines holds significant economic growth potential and may come into the investment spotlight within
the next few years
Table: PHILIPPINES Long-Term Macroeconomic Forecasts21
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Investment Climate 26
Foreign Ownership Definition Change To Undermine Investor Confidence
Foreign investor sentiment will be adversely affected by a supreme court ruling that has redefined the concept of
foreign ownership in Philippine public utilities, resulting in a surge in non-compliance among these firms
Business Environment Outlook 27
Institutions 27
Table: BMI Business And Operation Risk Ratings27
Table: BMI Legal Framework Rating28
Infrastructure 29
Table: Labour Force Quality30
Market Orientation 31
TABLE: ASIA, ANNUAL FDI INFLOWS31
Table: Trade And Investment Ratings32
Operational Risk 33
TABLE: TOP EXPORT DESTINATIONS33
Chapter 5: Key Sectors 35
Pharmaceuticals 35
Table: Generic Drug Sales Indicators 2007-201536
Table: OTC Medicine Sales Indicators 2007-201536
Table: Medical Devices Sales Indicators 2007-201537
Table: Prescription Drug Sales Indicators 2007-201537
Table: Patented Drug Market Indicators 2007-201538
Telecommunications 40
Table: Telecoms Sector – Internet – Historical Data And Forecasts, 2008-2015 41
Table: Telecoms Sector – Fixed Line – Historical Data And Forecasts, 2008-2015 41
Other Key Sectors 42
Table: Philippines Autos Sector Key Indicators42
Table: Philippines Infrastructure Sector Key Indicators42
Table: Philippines Defence and Security Sector Key Indicators 42
Table: Philippines Food and Drink Sector Key Indicators42
Table: Philippines Oil and Gas Sector Key Indicators43
Table: Philippines Freight Transport Sector Key Indicators43
Chapter 6: BMI Global Assumptions 45
Global Outlook 45
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS45
Table: EMERGING MARKETS AGGREGATE GROWTH46
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST47
Table: REAL GDP GROWTH CONSENSUS FORECASTS4
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