Philippine Economic Update 2019 – World Bank Group

Key Findings

 Economic growth slowed in the first half of 2019, driven by a rapid deceleration in
investment growth due to contraction in public spending and weaker global
economy. Nevertheless, the Philippines expects to sustain progress in poverty
reduction.

 Amidst rising global uncertainties, the Philippine economy remains strong and is
projected to grow 5.8% in 2019, before recovering to 6.1% and 6.2% in 2020 and
2021, respectively.

 In the short term, fast tracking the implementation of recently approved game-
changing reforms would help to achieve inclusive growth. In the long-term,
promoting competition to generate quality jobs will enhance the impact of growth on
poverty reduction in the Philippines.
Recent Economic Developments

 In the first half of 2019, economic growth slowed to its lowest level in eight years
amid challenging external environment and a significant slowdown in investment
growth.

 Private consumption was the main growth driver, as growth recovered to 5.8% year-
on-year in the first half of 2019 from 5.3% during the same period last year, driven
by moderating inflation, steady remittance inflows, an improving job market, and an
increase in economic activity from election-related spending.

 Declining inflation driven by stabilizing prices of food and energy prompted the
Bangko Sentral ng Pilipinas (Central Bank of the Philippines) to adopt a more
accommodative policy stance in 2019. Inflation fell to 1.7% in August 2019, the
lowest in almost 3 years.

 The Philippine government’s expansionary fiscal policies for 2019 was put on hold
as the delayed passage of the 2019 public budget impacted the pace of public
spending significantly in the first half of the year, resulting in substantial
underspending. Nevertheless, the implementation of previous tax-policy reforms led
to robust revenue, resulting in a lower than programmed fiscal deficit for the first
half of 2019.

 Improving labor market conditions, and sustained growth in real household

incomes, led to progress in poverty reduction.

Outlook and Risks

 The Philippines’ growth outlook is weakened by a difficult external environment and

domestic challenges, as growth is expected to slow from 6.2% in 2018 to 5.8% in
 2019, before recovering to 6.1% in 2020 and 6.2% in 2021. Both fiscal and
monetary policy remain supportive of growth, while a weak global economic
environment and a slow recovery in public investments, constitute the main
downside risks.

 Poverty reduction is expected to continue based on the current economic outlook.

The country’s poverty rate measured by the World Bank middle-income poverty line
of US$3.20/day is estimated to have declined from 26% in 2015 to 20.8% in 2019,
and further declining to 19.7% in 2020, and 18.7% in 2021.

 In the short-term, resuming public investment and fast tracking the effective
implementation of game-changing reforms such as the Ease of Doing Business
Law, the Rice Tariffication Law, the creation of a foundational ID system, and other
such transformational policy changes would be critical to set the country to a higher
path toward accelerating inclusive growth. While in the long-term, promoting
competition to foster quality job creation will enhance the impact of economic
growth on poverty reduction and shared prosperity

Fostering Competition and the Challenge of Restrictive Regulations

 Philippine markets are highly concentrated limiting market competition.

 The lack of competition in key sectors has negatively impacted Philippine firms and
consumers, resulting in sub-optimal outcomes in key sectors such as electricity,
telecommunications, transport and logistics.
 Reducing restrictions to market competition would yield significant payoffs for
households and firms in the country to boost the economy’s overall
competitiveness.

 Implementing these reforms will be critical:

 Address unclear or restrictive regulations in infrastructure sectors and

professional services to create more competitive conditions;

 Eliminate restrictions on foreign and domestic investors to help level the playing
field;

 Minimize the scope of controlled prices to incentivize firms to compete;

 Lessen the involvement of state-owned enterprises and other operations in

typically competitive markets to promote a more effective use of public funds;
and

 Streamline burdensome administrative procedures for businesses to make it

easy to enter the market.

https://www.worldbank.org/en/country/philippines/publication/philippines-economic-
update-october-2019-edition