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The Philippines: Robust Domestic Demand drives Economic Growth

Key Information
Population104.9 million
CurrencyPhilippine peso
Official languageFilipino and English
Form of governmentPresidential republic


Major Merchandise Exports (% of total, 2017)Major Merchandise Imports (% of total, 2017)
Electronic products (48.8%)Raw materials & intermediate goods (35.0%)
Machinery & transport equipment (7.7%)Capital goods (29.4%)
Mineral products (5.8%)Consumer goods (15.8%)
Top Three Export Markets (% of total, 2017)Top Three Import Markets (% of total, 2017)
Japan (14.9%)China (16.5%)
US (13.4%)Japan (10.4%)
Hong Kong (12.6%)South Korea (7.9%)

Source: Economist Intelligence Unit

Political Highlights

The Philippines is a republic with a presidential system. The president, who is limited to a single six-year term, functions as both head of state and head of government. In the 2016 presidential election, Rodrigo Duterte, the long-time mayor of Davao, won a landslide victory. Since coming into office, he presided over a massive crackdown on crime in the country, which draws criticism from human rights groups. He also pledged to make inclusive growth and poverty reduction his priority, as about one-fifths of Filipinos continue to live in poverty, and development in areas outside Manila has been lagging behind.

The Philippines has a diverse population, speaking more than 80 languages and dialects. It has faced separatist movements for decades in the southern Philippines, a region where Muslims make up a majority of the population in contrast to the rest of the country, which is mainly Roman Catholic. The previous Aquino administration and the Moro Islamic Liberation Front (MILF), the country’s largest Muslim rebel group, signed a comprehensive peace agreement in 2014 after four decades of conflict. The deal grants the Mindanao region greater political autonomy in exchange for an end to armed rebellion. However, there are concerns that delays in ratification of key legislation and an emergence of other rebel groups could lead to renewed conflict.

Economic Trend

Economic Indicators2015
Nominal GDP (USD bn)292.3304.5313.3328.7353.9
Real GDP growth (%)
GDP per capita (USD)2,8742,9472,9863,0863,274
Inflation (%)
Budget balance (% of GDP)-0.9-2.4-2.2-2.8-2.6
Current account balance (% of GDP)2.5-0.4-0.8-1.3-1.5
Public debt (% of GDP)44.842.142.141.741.1
External debt (% of GDP)27.625.424.323.221.6

* Estimates  ^ Forecast
Source: Economist Intelligence Unit

The Philippine economy posted solid growth in recent years, aided by strong domestic demand thanks to increasing urbanisation, a growing middle-income class, a large and young population, and substantial remittance inflows from Filipinos working abroad (equal to 10% of GDP). Private consumption, which accounts for more than 70% of GDP, makes the largest contribution to overall economic growth. Business activities are buoyant especially in the services sector including retail, business process outsourcing (BPO), tourism, real estate and financial services. In the near term, real GDP growth is forecast to remain strong, driven by robust domestic demand.

The country has comfortable fiscal and external positions. Thanks to an improving fiscal position in recent years, public debt as a percentage of GDP declined to 42.1% in 2017, the lowest in over a decade. Gross international reserves were equivalent to more than seven months of import cover. Against a backdrop of sound economic fundamentals, the Philippines has earned investment grade ratings from major credit rating agencies.

While the Philippine economy has performed well, the government realised the need to boost the level of investment, primarily in order to upgrade the country’s inadequate infrastructure. Investment to GDP ratio had risen to 25.1% in 2017 from below 20% five years ago. To raise more revenue to finance infrastructure and human capital investments, the government is pushing for a comprehensive tax reform, aiming at simplifying the tax system and yielding more tax revenue.

Chart: Hong Kong total exports to the Philippines
Chart: Hong Kong total exports to the Philippines

Hong Kong-Philippines Trade

Total exports from Hong Kong to the Philippines increased by 12.0% from HK$25,400 million in 2016 to HK$28,455 million in 2017. The top three export categories to the Philippines were: (1) electrical machinery, apparatus and appliances and electrical parts thereof (+36.1%), (2) office machines and automatic data processing machines (-0.5%), and (3) telecommunications and sound recording and reproducing apparatus and equipment (+12.0%), which represented 84.0% of total exports to the Philippines.

HKECIC Underwriting Experience

HKECIC imposes no restrictions on covering Philippine buyers. Currently, the insured buyers in the Philippines range from small and medium sized companies to subsidiaries of foreign listed companies. The Corporation’s underwriting experience on Philippines has been satisfactory, with no payment difficulty or claim payment case reported fromAugust 2017 to July 2018.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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