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Portfolio > Economy & Markets

Philippines: Hot Market, Growing Economy

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The Philippine stock market has been riding high, and presently hovers above a 15-month high. Its young population and thriving economy have helped it avoid the fallout from the financial crisis. But that doesn’t mean the nation of islands is free of troubles—either for itself or for the global marketplace.

Strong consumption from a young and expanding population has kept the country’s economy thriving, and the government has set a target of 6.5–7.5% growth for this year. But two factors threaten that planned expansion, and the irony is that it’s at least partially because of the country’s own successful economy.

Philippines Infographic

The first factor is traffic. Manila, the capital, is also the country’s busiest port. Busy ports mean lots of traffic, in addition to that presented by its population of 11.862 million. But traffic in the city of Manila had overwhelmed its roadways and become so nightmarish, with hours-long traffic jams, that the city government enacted a ban on trucks back in February. Trucks were barred from Manila’s roads between the hours of 5 AM and 9 PM. The city government rules the historic portion of the Metropolitan Manila area, which is much larger than the city proper.

The result, however, was not what the government had envisioned: with trucks shut out of the busiest port in the country for 16 hours a day, the port itself became so congested that it now threatens the country’s economy. Import growth slowed for two months in a row in both May and June, and prices started to rise on everything from consumer goods to food, thanks to traffic-induced supply chain problems.

The second factor is inflation. Food prices are now at a five-year high. Consumer prices are at three-year highs and inflation itself is at a 17-month high. Household consumption makes up 72.6% of the Philippines’ GDP, and rampant inflation could derail the country’s growth. The government is attempting to keep it at between 3–5 percent for the year, to keep its consumer-driven economy humming along at about the same pace as last year.

To try to solve the port backlog, the government has launched a “trade lane” into the port and tried to encourage shippers to use additional ports besides Manila. But the “trade lane” has its own traffic jams, and neither the traffic nor inflation problems have yet been solved.

Plenty of other elements are at play in the Philippine economy, of course. The country has taken a page from Indonesia’s book, and its natural resources committee has approved a bill to ban exports of unprocessed mineral ores. After Indonesia passed its own bill earlier in the year, the Philippines became China’s largest supplier of nickel ore; now the price of ore is on the rise.

For the Philippines, the goal is the same as it was for Indonesia: to bring in more income from the country’s natural resources and to spur the development of jobs in smelting and processing. While the bill must still go before a full congressional session for final approval, China will need to take action of some sort, since after the Indonesian ore export ban, the Philippines took over as primary supplier of the country’s raw ore needs.

Meanwhile, the need for infrastructure projects is hampered by restrictions on foreign ownership, which also extend into other sectors such as real estate and public utilities. But that doesn’t mean that building and investing aren’t proceeding, though there’s room for improvement.

Press in the Philippines reported in early September that five companies are considering bidding on a $92 million deal for a proposed Integrated Transport System South Terminal project, being offered by the Philippine government to investors under its public-private partnership program.

Another project, a $1.44 billion elevated rail line backed by the San Miguel Corp. consortium, has gotten a green light for construction by the Department of Transportation and Communications. When complete, the Metro Rail Transit Line 7 will link linking Metro Manila to Bulacan province.

And the country’s bonds are popular, too. When August inflation figures reported by the Philippine Statistics Authority came in at 4.9%, just under analyst predictions of 5%, the news drove down yields by two basis points.

But inflation, as already noted, is a challenge to the Philippine economy. In July, Bangko Sentral ng Pilipinas raised its key rate to 3.75% from a record-low 3.5%. On Sept. 11, the central bank is due for another decision on the benchmark interest rate. A majority of economists expect that the rate will rise to 4% by the end of the year.


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