Philippine growth: Resilience amidst global headwinds

Posted on Posted in 2018-2019

Photo by: © Cesar Campos: “Wet Market In Boracay”

Written by: Jose Rafael B. Jereza VI


The Ateneo Alumni Association held an Economic Forum last March 9, 2019, at Escaler Hall. Amando Tetangco Jr., former Bangko Sentral Ng Pilipinas (BSP) Chief, served as the sole speaker of the forum. Despite economic uncertainties both foreign and domestic, he asserted that the Philippine economy is in prime position to maintain its growth.


“While the global landscape is rapidly evolving, the domestic economy remains a familiar narrative of growth and resilience,” Tetangco said.

The Philippines has been experiencing unprecedented growth for the past few years. From being dubbed the Sick Man of Asia to being a tiger economy in the region, optimism about the country’s economic future has never been brighter.

Despite a subpar manufacturing sector and deficient infrastructure, the Philippines’ economic growth has been driven by increased investment, government infrastructure projects and a burgeoning service sector. However, recent developments in both foreign and domestic markets can be seen as a threat to Philippine growth.


Tetangco explained that the global economic landscape is becoming increasingly complex and its growth prospects remain uncertain. The International Monetary Fund (IMF) lowered its projections for expected growth in 2019 and 2020, and it’s slowing down at a rate faster than expected.

There is a growing trend where policymakers are less willing to trade, less willing to collaborate with other countries. Whether it’s Brexit or the Chinese-American trade war, the trend of inward economic policies is slowing down global trade and GDP growth.

“The uncertainty of the pace of the Fed’s policy normalization may contribute to financial market volatility.” Tetangco said. The US’ policy rates have a tremendous influence on global markets, especially emerging markets such as the Philippines. The Feds have implemented historically low interest rates ever since its housing crisis to try and spark domestic growth.

But as the economy recovers and the Feds normalize their policy rate, other central banks, including the BSP, have to raise their rates as well to avoid capital flight, making borrowing more expensive. The increased cost of borrowing disincentivizes financing purchases. This causes a decrease in consumer spending, which leads to less profit for business, which forces them to downsize to avoid overspending. These effects stifle economic growth.


Despite the troubling landscape, the Philippines is still in a strong position to withstand global headwinds. The Philippines has had a sustained economic boom for the past 20 years. It has had no contractions since 1999, and since 2012 to 2017 has had an average of 6.58% GDP growth, nearly double the pace of the world’s collective GDP growth rate of 3.52%, as per the IMF Database.

Inflation for 2019 is also expected to fall within BSP’s target range of 3±1%. The main culprits of last year’s high inflation were high oil prices aggravated by currency depreciation and rice shortages. Given the supply-side nature of the shocks, the BSP was hesitant in raising rates and instead opted for government intervention. Now, with oil prices down and rice tariffication allowing the importation of rice, inflation should be settling down.

Tetangco also brought up a widening trade deficit, mainly caused the government’s current infrastructure projects. However, the Philippines has enough capital and inflows to easily manage debt. The declining exports and surging imports don’t tell the whole story.

First, our inflow of foreign currency is sufficient. While most countries rely on manufacturing exports to bolster foreign reserves, the Philippines relies on remittances from OFWs.

Second, the goods being imported by the Philippines are mostly raw and capital goods. These intermediate goods, while in the short-run widens our trade deficit, allow the Philippines to potentially increase production through improved infrastructure which will eventually decrease its reliance on imports and increase exports, narrowing the trade gap.

Finally, the Philippines debt is getting larger, but so is its productive capacity. The Philippines’ debt-to-GDP ratio has been on a downward trend since 2004. And as the productive capacity of the Philippines grows from these imports, this ratio should lessen in the long run and assuage worries over a potential default. Given these anchors, we can be confident the Philippines is entering 2019 in a position of relative strength.


“The only way for us to move forward… is for us to look both ways”. Tetangco said the Philippines should stick to the policy reforms that made growth possible and build on the success of these reforms for the future.

From the creation of the BSP in 1993 to the TRAIN Law, these policy reforms show the Philippines’ dedicated pursuit to effective reforms that can catalyze economic growth. The strong prospects of the Philippines are reinforced by the assessment of major credit rating agencies, with Moody’s, S&P, and Fitch giving the Philippines investment grade a positive outlook.

However, there are those still excluded from the economic boom in the country. Amidst growing frustration among the poor and rising inequality, the Philippines must aim for inclusive growth. The BSP’s recent policy reforms have been about enhancing the country’s microfinance sector. Despite its success, the BSP can’t be alone in its effort to achieve inclusive growth. It has to be a cooperative effort by the BSP, the government, and the private sector.

There are things that go beyond the control of the BSP, as shown by the need for government intervention last year to address supply shocks. Moving forward, policy coordination is vital among these 3 parties as they work to the same goal: sustained and inclusive growth.

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