The Philippines: Market Profile
Major Economic Indicators
- The Philippine economy is expected to maintain strong growth of 6.6% in 2017, led by robust domestic demand and a recovery in exports.
- Consumer price inflation is forecast at 3.1% in 2017, up from 1.8% in 2016, mainly due to higher housing, utilities, transport and education costs. The Philippine central bank has kept the policy rate unchanged at 3% since June 2016.
- Philippine exports increased by 12.2% YOY to US$47.7 billion in the first nine months of 2017, whereas imports increased by 7.4% YOY to US$66.7 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 10.2% YOY to US$2.7 billion in the first nine months of 2017, while imports from the country increased by 30.3% YOY to US$7.1 billion.
Current Economic Situation
The Philippine economy is expected to maintain strong growth of 6.6% in 2017, led by robust domestic demand and a recovery in exports. The IMF expects the Philippines to maintain similar GDP growth in 2018 on the back of sound domestic macroeconomic fundamentals and modest fiscal stimulus.
The Philippines economy grew by 6.4% year-on-year (YOY) in the first half of 2017. Industry and services expanded by 7.3% and 6.1% YOY respectively in this period. Consumer price inflation has stayed within the target band (3%±1%) in the same period. 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.
During his meeting with China’s President Xi in November 2017, both sides reaffirmed their commitments to deepen cooperation in infrastructure construction, agriculture, investment and other areas centering on the alignment of the Belt and Road Initiative with the Philippines' development strategy. In the wake of Duterte’s vow of opening up for bilateral relations with China in 2016, the Philippines has entered into over 10 bilateral co-operation agreements with China.
Apart from infrastructure, President Duterte has tackled some long-standing problems which are considered to have hindered business in the Philippines such as bureaucracy, corruption and security issues. However, the business environment in the Philippines remains challenging, but it is expected to improve in the medium term.
In the first nine months of 2017, Philippine exports increased by 12.2% YOY to US$47.7 billion. Japan was the Philippines’ top export market during the period, accounting for 16.6% of the country’s total export. The US was ranked second with a share of 14.7%. Hong Kong was the third largest export market for the Philippines with a share of 13.2% in the same period.
Philippine imports increased by 7.4% YOY in the first nine months of 2017 to US$66.7 billion. China was the top import source of the Philippines, accounting for 17.9% of the country’s total imports. Japan came second with 11.8% share of the Philippines’ imports. Korea was ranked third, accounting for 8.4% of the total.
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) in 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). In November 2017, ASEAN signed a free trade agreement and an investment agreement with Hong Kong. The agreements are expected to come into force on 1 January 2019 at the earliest, subject to completion of the necessary procedures.
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 the first nine months of 2017. Hong Kong’s total exports to the Philippines rose 10.2% YOY to US$2.7 billion.
In the first nine months of 2017, major export items included telecom equipment and parts (US$546 million, 20.6% share), parts and accessories of office machines/computers (US$424 million, 16% share), semi-conductors, electronic valves and tubes, etc. (US$260 million, 9.8% share), office machines, (US$193 million, 7.3% share) and electrical apparatus for electrical circuits (US$184 million, 6.9%).
Over the same period, Hong Kong imports from the Philippines increased by 30.3% YOY to US$7.2 billion. Major import items were semi-conductors, electronic valves and tubes (US$5 billion, 69.8% share), computers (US$450 million, 6.3% share) and telecom equipment and parts (US$349 million, 4.9%).
The Philippines’ Involvement in Hong Kong Economy
As of end-October 2017, there were 215,276 Filipinos residing in Hong Kong. According to the Hong Kong Census and Statistics Department, 39 Philippine companies had set up their regional and local offices in Hong Kong as of June 2017.
According to the Hong Kong Tourism Board, the number of visitors coming from the Philippines amounted to 640,319 in the first nine months of 2017, increasing by 15.4% 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.