Growth in manufacturing production quickened in the second
half of 2012, and exports of semiconductors turned up late in the year.
Construction is expected to maintain solid growth. High demand for
using and office space is spurring private construction, supported by low
interest rates. The government has raised its budget for infrastructure in
2013 and a program to create public–private partnerships for infrastructure
development, which started sluggishly, is gathering some momentum.
A projected pickup in exports of electronics will contribute to
growth in merchandise exports in 2013. Rapidly growing Southeast Asian
markets now buy 19% of the Philippines’ exports, up from just 13% in
2008. However, robust domestic demand suggests that imports will be
considerably higher, so that net external demand weighs on GDP growth
On the balance of these factors, GDP growth is forecast at 6% for
this year, with a similar pace anticipated in 2014 (Figure 3.28.9). Growth
in remittances and services exports will contribute to current account
surpluses of around 3% of GDP.
Inflation is seen edging up to a moderate 3.6% this year owing to
robust domestic demand and the higher taxes on tobacco and alcohol.
These tax hikes added 0.5 percentage points to inflation recorded at 3.2%
in the first 3 months of 2013. The firm peso and soft global commodity
markets are expected to offset part of the upward pressure on prices
generated by strong domestic demand in 2014, containing inflation to a
forecast 3.8% (Figure 3.28.10). Inflation at these rates would be well within
the central bank’s target range of 3%–5%, giving it the option of keeping
policy interest rates accommodative to growth.
Sources: Asian Development Outlook
database; National Statistical Coordination Board. http://www.nscb.gov.ph
(accessed 1 March 2013).National
Statistics Office. http://www.census.gov.ph (accessed 15 March 2013).
Concerned about risks associated with volatile capital flows, the
monetary authorities last year moved to curb speculative inflows by
prohibiting deposits from nonresidents in its special deposit account
facility and cutting interest rates on these accounts. They also imposed
a higher capital requirement for banks’ holdings of non-deliverable
forwards, which could be used for speculative purposes and tightened
rules governing these instruments. The central bank strengthened its
oversight of bank lending for real estate to more closely monitor the
impact of capital inflows. Bank balance sheets remain healthy overall:
capital adequacy ratios are well above the 10% minimum statutory
requirement (16.9% for universal and commercial banks in June 2012), and
nonperforming loans are in the low single digits.
The government’s credibility as an instrument advancing reform
has been enhanced by the higher excise taxes on alcohol and tobacco,
which will help to fund health care for the poor, and the passage of
the Responsible Parenthood and Reproductive Health Act. Governance
reform, too, has made progress, though much remains to be done.
The 2012 Transparency International Corruption Perceptions Index
ranked the Philippines 105th of 176 countries, still low but above
Indonesia and Viet Nam, which had been ahead of the Philippines in 2011.
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