August 27, 2019 (13:19) | Publication: EIU - Country Summary

Philippines - Briefing sheet, Aug 2019

Political and economic outlook

The Economist Intelligence Unit expects Rodrigo Duterte, the president, to retain a strong grip on power even as his term approaches its end in 2022. The coalition that
backs him will remain cohesive under the leadership of his daughter, Sara Duterte.
Mr Duterte's efforts to deepen economic relations with China will bear fruit, despite the countries' unresolved territorial disputes in the South China Sea. However,
domestic political considerations will limit the prospect of a full pro-China tilt.
We expect the Bangko Sentral ng Pilipinas (BSP, the central bank) to loosen monetary policy further in 2019-20 in response to easing inflationary pressures and
lacklustre levels of private investment. Policy tightening will resume in 2021-23.
The economy will grow by an average of 5.6% a year in 2019-23, slower than the average rate of 6.4% recorded in 2014-18. The slowdown will be driven in large part
by weaker investment and export growth in the early part of the forecast period.
The peso will appreciate modestly against the US dollar in 2019. This trend will reverse in 2020 with a widening of the current-account deficit. The peso will weaken
further in 2021-22 ahead of the presidential election due in 2022.
The Philippines will record a current-account deficit in 2019-22 before returning to surplus in 2023. This is largely due to the wide shortfall on the trade account, which
will not be adequately offset by surpluses elsewhere. The deficit will average 2.1% of GDP in 2019-22.

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Key indicators
2018a 2019b 2020b 2021b 2022b 2023b
Real GDP growth (%)c 6.2 5.7 5.2 5.8 5.8 5.7
Consumer price inflation (av; %) 5.3 3.3 3.1 4.1 4.6 4.7
Government balance (% of GDP) -3.2 -2.5 -2.7 -2.3 -2.5 -2.3
Current-account balance (% of GDP) -2.4 -2.1 -2.6 -2.1 -1.6 0.1
Money market rate (av; %)d 3.6 4.5 1.9 2.5 3.5 3.6
Unemployment rate (%) 5.3e 5.3 5.4 5.4 5.3 5.3
Exchange rate P:US$ (av) 52.66 52.10 53.36 53.74 54.36 54.07
a Actual. b Economist Intelligence Unit forecasts. c Includes statistical discrepancy. Seasonally adjusted. d Average. e Economist Intelligence Unit
estimates.

Key changes since July 11th

Softening inflation and a slump in investment will incline the BSP to cut its policy interest rate once more, in October 2019, after having already reduced rates twice this
year. We had previously believed that it would cut rates only twice in 2019.
We have revised down our forecast for government consumption growth in 2019, from 9.5% to 8.4%, on account of weaker than expected second-quarter data.
Private industrial investment has fallen below our expectations in recent months, as companies turn dovish in their outlook for external demand. Accordingly, we have
revised down our real gross fixed investment growth forecast for 2019, from 9% to 3.9%.
We have adjusted our forecast for exports of goods and services (on a national-accounts basis) on the back of weak data for the second quarter of 2019. We now expect
exports to grow by 4.2%, compared with 5.5% previously.
The above changes have resulted in a headline growth forecast of 5.7% for 2019, down from 6% before. Similarly, related effects have led to a downward adjustment to
the 2020 forecast, from 5.3% to 5.2%.

The month ahead

September 5th-Consumer prices (August): Consumer price inflation slowed to 2.4% year on year in July, from a peak of 4.4% in January of this year. The data will give
an indication of whether robust private consumption growth can counter the disinflationary effect of falling commodity prices.

Major risks to our forecast

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Scenarios, Q2 2019 Probability Impact Intensity
The Philippines loses GSP plus privileges due to human rights Very high Moderate 15
Payment crisis is triggered from a collapse of the peso Moderate Very high 15
Tax collection is stepped up High Moderate 12
Extreme weather sets back infrastructure development Moderate High 12
Militants attack Manila Moderate High 12
Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating
environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

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