The Philippine economy, once dismissed as the sick man of Asia, is off its sickbed. The first quarter’s year-on-year GDP increase of 7.8% eclipsed China’s. Pervasive corruption, mismanagement and political violence stymied progress in the 1980s and 1990s. But last year saw a peace deal with the largest Muslim secessionist group.
The current president, Benigno Aquino, “has made corruption his primary target”, says James Hookway in The Wall Street Journal. He has also clamped down on excessive government spending. Government “used to be a model of inflexibility, but that’s all changed”, says Benedict Hernandez of the Business Processing Association.
More business-friendly government has helped the skilled and well-educated workforce carve out a global presence in high-tech manufacturing outsourcing. The Philippines has overtaken India to become the world’s largest provider of voice-based outsourcing services, says Hookway.
Meanwhile, the last two governments have “worked hard to put the country’s fiscal house in order”, says The Economist. Stronger growth has also helped the overall debt pile fall from 68% of GDP in 2003 to 41% last year. Inflation is under control; indeed, it has dipped below the central bank’s 3%-5% target. Along with buoyant remittances from the diaspora overseas – worth 10% of GDP – this is underpinning private consumption growth of 7% a year. There is ample scope for boosting domestic demand as the Philippines boasts one of the youngest populations of all emerging markets.
Unlike many Asian economies, it doesn’t depend on exports to drive growth, so it has a partial buffer against a global slowdown. And having built up a current-account surplus and plenty of foreign-exchange reserves in recent years, the economy is far less vulnerable to foreign money leaving during a crisis than most emerging markets. The Philippines, concludes RBS, is in a “sweet spot”.
Plenty of investors have noticed the Philippines has got its act together. The stockmarket is only around 12% below its May record. It is also still on a price/earnings ratio of around 20. But with emerging markets looking likely to stay volatile as investors fear an end to money printing, there may soon be a chance to pick up a few shares of the Deutsche Bank X-Trackers MSCI Philippines IM Index ETF (LSE: XPHI) at a cheaper price.