Magazine article Global Finance

The Philippines Are Hot. Too Hot?

Magazine article Global Finance

The Philippines Are Hot. Too Hot?

Article excerpt

Last year, Philippine GDP grew 6.7% and looks to show similar health in 2018, according to the IMF, World Bank and other forecasters.

But a slew of recent data suggests the economy is showing signs of overheating. A population of more than 106 million and an emergent middle class have driven a consumerand construction-led boom that is stoking inflation and fueling a trade deficit.

Unsurprisingly, pressure is mounting on Bangko Sentral ng Pilipinas, the central bank, to act.

Still, any slowdown may be moderated by the government's ambitious "Build, Build, Build" program, with infrastructure spending reaching 8 to 9 trillion pesos ($154 to $173 billion) between 2017 and 2022, says ANZ Research. Funding is partly supported by the first package of the controversial Tax Reform for Acceleration and Inclusion bill-dubbed TRAIN 1 -which the government expects will increase tax collections by 100 to 130 billion pesos, or around 0.7% of GDP, in 2018.

But it is the long shadow of maverick president Rodrigo Duterte that unnerves investors. His contentious war on drugs has claimed more than 12,000 lives, according to the Philippine Alliance of Human Rights Advocates-though government authorities dispute the figure. It shows little sign of abating, and the possibility he could extend martial law nationwide overshadows confidence. Still, Duterte, seen as an establishment outlier, remains hugely popular among Filipinos.


January headline inflation surged to 4% year-on-year, the highest in three years. Consumer prices have risen for 23 straight months amid expectations inflation may breach the upper limit of the central bank's 2% to 4% inflation target range.

Rapid credit growth has sucked in imports, causing a record trade deficit of $3.8 billion in November and heaping pressure on the peso, the proxy for swelling economic imbalances. …

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