The Philippines ended 2010 with a stronger economy, a new government and hopes for continued stability and expansion.
Without doubt, the biggest story of the year was the victory of Benigno Aquino III in the presidential elections held at the end of May. Aquino campaigned heavily on a platform of combating corruption, improving income distribution and careful management of the economy while not reducing spending on social services.
Following his swearing in at the end of June, Aquino enjoyed a honeymoon period thanks to the solid performance of many sectors, a stream of capital inflow and record high remittances – some $15.5bn was sent home in the first 10 months of 2010, a year-on-year increase of 7.9%.
The election had a significant impact on the economy, with the administration of outgoing President Gloria Macapagal-Arroyo lifting spending in the lead up to the poll. Added to the government spending were large outlays by candidates of all political hues, which again fuelled growth. The first two quarters of the year saw a surge in GDP, which increased by 7.8% in the first three months of the year and 8.2% in the second, before cooling somewhat in the third to a still healthy 6.5%.
Though year-end figures have yet to be compiled, in a statement issued in late December, Socioeconomic Planning Secretary Cayetano Paderanga said he was confident the government’s mid-year target of 5% would be exceeded. However, Paderanga also acknowledged that there were signs the economy was slowing as it entered 2011.
The country’s growth in 2010 was helped by the Bangko Sentral ng Pilipinas (BSP) keeping interest rates low, a move that encouraged banks to open their coffers and boost consumer lending. According to data released by the reserve bank on January 3, there was a 12% increase in the volume of consumer loans from commercial and universal banks in the first nine months
With the BSP keeping its key rates at historic lows into the new year – overnight borrowing and lending rates have been set at 4 and 6% respectively – the high levels of liquidity should further prime the economic pump into 2011.
While easy access to credit has helped boost the economy, there are concerns that it could lead to overheating as demand outstrips supply, reigniting inflation, as too could higher food and oil prices in the new year. Year-end inflation is forecast to have been around 4% for 2010, well within the 3.5 to 5.5% range aimed for by the government and the BSP.
Another indicator of economic health was an increase in the workforce, with the National Economic and Development Authority reporting a 2.8% year-on-year growth in employment as of the end of October. While unemployment remained steady at 7.1%, almost 1m jobs were created year-on-year until that month. It remains to be seen if this rate can be maintained as some of the 2010 economic stimulus programmes wind up.
The Philippines’s export industries also had a good year, though some of their gains were undercut by a strong peso, which strengthened to around 43.6 to the dollar at the beginning of 2011, compared to 45 to the dollar at the end of 2009. According to the BSP, the current account surplus for the first three quarters of 2010 ran to $7bn, representing 5.2% of GDP, well up on the $6.2bn posted for same period the previous year. In a statement issued on December 23, the reserve bank said the good result was due in part to strong export trade.
Looking forward, Filipino exporters may have some cause for concern if main markets, such as the US, Europe and Japan falter in 2011. With electronic products accounting for around 60% of overseas sales, a return to recession in some of the world’s main industrialised countries could have a very immediate effect on the economy.
While the Aquino administration may struggle to keep the economy ticking over at the same rate as in 2010, it will be lifting spending in its 2011 budget, with outlays to total $37.7bn, up from this year’s $37.1bn, with a forecast deficit of $3.8bn. The president has promised to step up spending on infrastructure projects, though with much needing to be done and limited resources with which to do it, 2011 may be a year of consolidation rather than break out expansion.