8 Sept 2017
The Philippines: Market Profile
Major Economic Indicators
- The Philippine economy is expected to maintain strong growth of 6.8% in 2017 on the back of a robust service sector. The country is projected to be the fastest-expanding major ASEAN economy over the next 5 years.
- Consumer price inflation is expected to rise to 3.6% in 2017 from 1.8% in 2016, mainly due to higher housing, utilities, transport and education costs. The Philippine central bank kept the policy rate unchanged at 3% in December 2016.
- Philippine exports dropped by 7.5% year-on-year (YOY) to US$ 26.8 billion in the first half of 2016, whereas imports increased by 17.7% YOY to US$38.7 billion during the same period.
- President Duterte has made infrastructure development a top socio-economic development priority. Public infrastructure spending is targeted to reach as much as PHP9 trillion (US$180 billion) during the period of 2017-2022.
- Hong Kong’s total exports to the Philippines increased by 9.8% YOY to US$2 billion in the first seven months of 2017, while imports from the country increased by 29.8% YOY to US$5.4 billion.
Current Economic Situation
The Philippine economy is expected to maintain strong growth of 6.8% in 2017 on the back of a robust service sector. The IMF expects the Philippines to maintain similar GDP growth in 2017 on the back of continued domestic demand and modest fiscal stimulus. The country is projected to be the fastest-expanding major ASEAN economy over the next 5 years.
The Philippines economy grew by 6.4% year-on-year (YOY) in the first half of 2017. Industry and services expanded 7.3% and 6.1% YOY respectively in this period. Agriculture recovered with 6.3% YOY growth after a contraction of 2% in the year-earlier period. Consumer price inflation rose to 2% in 2016 from 1.4% in 2015. The Philippine central bank has kept its benchmark interest rate unchanged at 3% since June 2016.
President Rodrigo Duterte remains popular after a year in office. Underlining his policy is a more multilateral diplomatic pivot which opens to closer economic co-operation with China. Infrastructure development has become a top priority of his socio-economic agenda. Under his “Build Build Build” initiative, a list of mega infrastructure projects amounting to US$160 billion is in the pipeline. Infrastructure spending is ambitiously targeted to increase from less than 2% of GDP in 2016 to 5% by 2017, then further expanding to 7% by 2019. Infrastructure investment is expected to be a major economic driver over the next few years.
In May 2017, President Duterte said that China’s Belt and Road Initiative, which highlights infrastructure connectivity, highly complements the Philippine government's development plan of 2017-2022. In the wake of Duterte opening the door for bilateral relations with China in 2016, the Philippines has entered into 13 bilateral cooperation agreements with China worth US$24 billion.
Apart from infrastructure, President Duterte has tackled head on some long-standing problems hindering doing business in the Philippines, such as bureaucracy, corruption and security issues. However, the business environment in the Philippines remains challenging, hopes are brighter that the situation will improve in the mid-term.
In the first half of 2017, Philippine exports increased by 13.6% YOY to US$31 billion. Japan was the Philippines’ top export market during the period, accounting for 18.5% of the country’s total export. The US ranked second with a share of 14.2%. Hong Kong was the third largest export market for the Philippines with a share of 13.6% in the same period.
Philippine imports increased by 8.9% in 2016 from US$71 billion in 2015 to US$84.1 billion in 2016. In 2016, China was the top import source of the Philippines and accounted for 18.8% of the country’s total imports. Japan came second with 12.8% share of the Philippines’ imports. Thailand and Korea both ranked third, each accounting for 7.7% of the total.
The new government led by President Duterte, after his election victory in May 2016, has steered a change in the Philippines’ external relations with major countries including both the US and China. In a bid to diffuse concerns about the Philippines reneging on treaties and agreements with the US, President Duterte said in October 2016 that he was advocating a "separation of foreign policy" rather than "a severance of ties." This was followed by comments from the trade minister saying the Philippines was maintaining trade and investment ties with the US.
As a member of the Association of South-East Asian Nations (ASEAN) and the ASEAN Free-Trade Area (AFTA), the Philippines is committed to tariffs reduction for ASEAN imports to a 5% cap on all products. With the implementation of the ASEAN Trade in Goods Agreement (ATIGA), basically all tariff lines have been brought down to zero. The Philippines has assumed the one-year rotational chairmanship for ASEAN in 2017.
Goods imported into the Philippines are subject to import tariffs, excise duties, VAT, and various customs fees and related charges. All tariffs are ad valorem on the c.i.f. value of imports. The Philippines have reduced its simple average applied MFN rate from 7.4% in 2004 to 6.3% in 2015, with average rates of 9.9% on agriculture and 5.7% on non-agricultural products.
As a member of the WTO, the Philippines has been complying with the WTO Information-Technology Agreement (ITA) since 2000 by imposing zero-tariff on most information-technology equipment and inputs.
As a member of ASEAN, the Philippines is committed to undertaking the needed reforms and liberalisation measures related to the formation of ASEAN Economic Community (AEC) at the end of 2015, while trying to cushion the effect of AEC on the local economy.
To deepen economic integration in the region, the Philippines have ratified a number of regional free trade agreements, including the ASEAN-China Free Trade Agreement (ACFTA), the ASEAN-Korea Free Trade Agreement (AKFTA), the ASEAN-Australia-New Zealand FTA (AANZFTA), the ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEPA), the ASEAN-India Free Trade Agreement (AIFTA) and the Philippine-European Free Trade Association Free Trade Agreement (EFTA). Besides, the Philippines ratified the Philippines-Japan Economic Partnership Agreement (PJEPA) in 2008 to further expand Philippine exports of goods and services to Japan.
The Philippines is also the only ASEAN country that enjoys the EU’s Generalised Scheme of Preferences Plus (GSP+) status, which grants full removal of tariffs to over two-thirds of tariff lines. The Philippines is also among the top beneficiaries of the US GSP. Duty-free treatment is granted to about 5,000 lines of Philippine products. However, textile, apparel and footwear (TCF) are removed from the GSP list since 2015, weakening competitiveness of Philippine TCF products to the US.
Hong Kong’s Trade with the Philippines
The Philippines was the 19th largest export market for Hong Kong in both the first seven months of 2017. Hong Kong’s total exports to the Philippines rose 9.8% YOY to US$2 billion, following an increase of 7.9% in 2015.
In the first seven months of 2017, major export items included telecom equipment and parts (US$411 million, 20.3% share), parts and accessories of office machines/computers (US$327 million, 16.2% share), semi-conductors, electronic valves and tubes, etc. (US$183 million, 9% share), office machines, (US$150 million, 7.4% share) and electrical apparatus for electrical circuits (US$145 million, 7.2%).
Over the same period, Hong Kong imports from the Philippines increased by 29.8% YOY to US$5.7 billion. Major import items were semi-conductors, electronic valves and tubes (US$3.7 billion, 69.5% share), computers (US$344 million, 6.4% share) and telecom equipment and parts (US$265 million, 4.9%).
The Philippines’ Involvement in Hong Kong Economy
As of end-July 2017, there were 198,660 Filipinos residing in Hong Kong, most of them working as domestic helpers in the city. According to the Hong Kong Census and Statistics Department, 33 Philippine companies had set up their local offices in Hong Kong as of June 2016.
According to the Hong Kong Tourism Board, the number of visitors coming from the Philippines amounted to 514,933 in the first seven months of 2017, increasing by 15.1% YOY.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.
Related information: Philippines infographics