Philippines economy shows robust growth into the new year (2024)

ECONOMICS COMMENTARY Dec 22, 2023

Recent economic data shows that the Philippines economy hascontinued to show robust expansion, with GDP growth of 5.9%year-over-year (y/y) in the third quarter of 2023. Latest S&PGlobal Purchasing Managers Index survey results for November 2023also showed that the Philippines manufacturing sector is one of thefastest growing amongst the major economies worldwide.

Sustained remittance inflows from workers abroad, fast-growingIT-BPO sector exports and the continued recovery of the tourismsector are also expected to support economic growth momentum during2024. International visitor arrivals are estimated to have doubledin 2023 compared to 2022, driving a significant rebound ininternational tourism revenues.

Philippines amongst world's fastest growing emergingmarkets

The Philippines economy has continued to show strong recoveryfrom the COVID-19 pandemic during 2023, with GDP growthstrengthening to a pace of 5.9% y/y in the third quarter of 2023,compared with GDP growth of 4.3% y/y in the second quarter of2023.

The continued rapid economic expansion in 2023 follows a strongrebound from the COVID-19 pandemic during 2022, which drove thepace of growth of the Philippines economy to the fastest rate since1976. The Philippines GDP growth rate of 7.6% in 2022 wascomparable to some of the world's fastest growing large emergingmarkets in 2022, including the Gulf Co-operation Council oilexporting nations of Saudi Arabia and United Arab Emirates, as wellas other rapidly growing Asian emerging economies such as Malaysia,Vietnam and India.

The Philippines has also shown a much-improved economic growthperformance over the past decade, apart from during the peak periodof the COVID-19 pandemic during 2020-21 when there was widespreadglobal disruption to economic activity. During the period from 2012to 2019, real GDP growth in the Philippines each year rangedbetween 6% to 7%. The economic rebound in 2022 pushed real economicgrowth to the highest pace recorded since 1976, with householdfinal consumption expenditure growing by 8.3% y/y while grosscapital formation grew by 16.8% y/y.

Recent economic data has continued to show expansionaryconditions in the Philippines economy during the fourth quarter of2023. The headline S&P Global Philippines Manufacturing PMIrose from 52.4 in October to 52.7 in November, signalling continuedexpansionary operating conditions that was the strongest readingsince February.

The uptick in the headline PMI figure reflected gains across thetop two PMI components of output and new orders. Firms noted thatstrong demand conditions both in domestic and foreign markets, newclient wins and increased contract work boosted overall sales andin turn spurred greater production.

The latest international S&P manufacturing PMI surveyresults for November 2023 also show that the Philippinesmanufacturing sector was one of the fastest growing among all thecountries surveyed worldwide.

According to the November Manufacturing PMI survey results, therate of input price inflation was the weakest recorded in overthree years, resulting in a similarly modest uptick inmanufacturers' selling prices.

Broader inflation pressures have remained a key concern forBangko Sentral ng Pilipinas (BSP) during 2023. However, theheadline CPI inflation rate has moderated to 4.1% y/y in late 2023,compared with 8.6% y/y in February 2023.

The CPI inflation rate had moved significantly above the BSPinflation target range of 2% to 4% due to the upsurge in inflationpressures during 2022 and the first half of 2023. As a result, theBSP tightened monetary policy by a total of 450 basis points (bps)since May 2022, with the most recent policy rate hike of 25bps on27 October 2023. However, the BSP Monetary Board kept the policyrate unchanged at its November and December meetings, with itsassessment that CPI inflation would come back within the BSPinflation target range during 2024.

Improving balance of payments position in 2023

The Philippines recorded a significant improvement in itsbalance of payments position during 2023, with a cumulative balanceof payments surplus of USD 3 billion for the first eleven months of2023, compared with a deficit of USD 7.9 billion for the sameperiod a year ago. This reflected a significant moderation in thecurrent account deficit during 2023 and was also helped bycontinued growth in worker remittances from abroad.

The current account has shifted into deficit since 2020. In2020, the current account had reached a record surplus of USD 11.6billion or 3.2% of GDP, boosted by the sharp slump in imports dueto the severe contraction in domestic demand during the COVID-19pandemic peak. However, the current account shifted back to adeficit of USD 6.0 billion in 2021, or 1.5% of GDP, as growthrecovery triggered higher domestic demand and rising imports. In2022, the current account deficit rose to USD 17.8 billion,equivalent to 4.4% of GDP. Imports soared during 2022, with surgingprices for world oil and gas being important factor contributing toa further sharp deterioration in the current account balance forcalendar 2022.

The current account deficit is estimated to have moderated toUSD 11.2 billion or 2.5% of GDP for 2023, according to latest BSPestimates in December 2023. The BSP projects that the currentaccount deficit will narrow to USD 9.5 billion in 2024, or around2% of GDP.

External debt as a share of GDP remains moderate, at anestimated 28.5% of GDP in June 2023, according to BSP data.

An important stabilizing factor for the Philippines economy hasbeen overseas worker remittances by Filipinos working abroad,equivalent to around 10% of GDP. Remittances sent home by workersare an important factor supporting domestic consumer spending inthe Philippines. Despite concerns about job losses for workersabroad due to the impact of the pandemic on many industries such astourism and aviation, remittances data continues to show resilientremittance inflows. Remittances by workers abroad rose by 5.1% y/yin 2021, to USD 34.9 billion. In 2022, remittances by workersabroad rose by 3.6% y/y, to USD 36.1 billion. In the first tenmonths of 2023, worker remittances rose further, by 2.8% y/ycompared to the same period a year ago.

Rapid growth in exports from the IT-BPO sector have also becomean important boost for the Philippines economy and for totalexports. IT-BPO exports have risen from USD 9.5 billion in 2010 toUSD 25.1 billion by 2021, according to BSP estimates.

Philippines economic outlook

The Philippines economy has recorded a third successive year ofstrong economic growth in 2023, after GDP growth for calendar 2021rebounded to 5.6% y/y and strong growth momentum continued in 2022at a pace of over 7.6% y/y.

The easing of pandemic-related travel restrictions since 2022has also allowed a gradual recovery of domestic and internationaltourism travel during 2022 and 2023. International visitor arrivalswere estimated to have reached 5.1 million by mid-December 2023,exceeding the government's international tourism arrival target of4.8 million for calendar 2023. International tourism arrivals haveapproximately doubled compared to total arrivals of 2.6 million in2022.

Prior to the pandemic, in 2019, gross direct tourism value addedas a share of GDP was estimated at 12.7% of GDP, including bothinternational and domestic tourism spending. International tourismspending was estimated at PHP 549 billion, while domestic tourismspending was estimated at PHP 3.1 trillion. Due to the importanceof domestic tourism in the overall contribution of tourism to GDP,the continued recovery of tourism could be a significant growthdriver in 2024.

Continued rapid GDP growth of around 5.6% y/y is forecast for2024, helped by sustained strong private consumption spending, anupturn in government infrastructure spending and improvingremittance inflows. Over the next decade the Philippines economy isforecast to continue to grow rapidly, with total GDP increasingfrom USD 440 billion in 2023 to USD 800 billion in 2030. A keygrowth driver will be rapid growth in private consumption spending,buoyed by strong growth in urban household incomes.

By 2033, the Philippines is forecast to become on theAsia-Pacific region's one trillion-dollar economies, joiningmainland China, Japan, India, South Korea, Australia, Taiwan andIndonesia in this grouping of the largest economies in APAC. Thisstrong growth in the size of the Philippines economy is alsoexpected to drive rapidly rising per capita GDP, from USD 3,700 in2023 to USD 6,200 by 2030. This represents a remarkable improvementin the per capita GDP of the Philippines since 2000, when the GDPper person was just USD 1,100 per head. The rapid growth ofhousehold incomes over the next decade will help to underpin thegrowth of the Philippines domestic consumer market, catalysingforeign and domestic investment into many sectors of thePhilippines economy.

The Philippines will also benefit from its membership of therecently implemented RCEP trade deal, particularly due to its veryfavourable rules of origin treatment, which provide cumulativebenefits that will help to build manufacturing supply chains withinthe RCEP region across different countries. This will help toattract foreign direct investment flows for a wide range ofmanufacturing and infrastructure projects into the RCEP membernations, particularly into low-cost manufacturing hubs such as thePhilippines.

Consequently, the outlook for the Philippines economy over thenext decade is very favourable, with significant progress ineconomic development expected. In 2021, the Family Income andExpenditure Survey of the Philippines government indicated that 20million people, or around 18.1% of the total population, still livebelow the poverty threshold. Rapidly rising per capita GDP andstandards of living will help to underpin a broad improvement inhuman development indicators and should deliver a significantreduction in the share of the population living in extreme povertyby 2030.

Access the Philippines Manufacturing PMI press releases here.

Rajiv Biswas, Asia Pacific Chief Economist, S&PGlobal Market Intelligence

[email protected]

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Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.