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A solid foundation for growth in the Philippines

Market Insights | April 3, 2023

In January this year, the S&P Global Philippines Manufacturing PMI (Purchasing Managers Index) hit a seven-year high, reaching 53.5. The fact that it has now not dropped below 50 since August 2021 indicates that growth has stabilised and the outlook for this complex archipelago nation’s manufacturers is good.

The coming decade is expected to be one of rapid growth for the Philippine economy. GDP could well top $1 trillion by 2034, representing a significant “moving up through the ranks” amongst its neighbours in the Aisa-Pacific region (mainland China, Japan, India, South Korea, Australia, Taiwan and Indonesia will be the other members of APAC’s trillion-dollar club by that year).  If this happens, we will also witness a transformation in the structure of the Philippine economy, especially its domestic consumer market, with per-capita GDP predicted to almost double in the years from 2021-2031 (from $3400 to $6400), and with much-increased foreign direct investment.

The recent strong PMI figures are not primarily due to foreign orders.  Even though the value of merchandise exports from the Philippines continues to increase (most notably exports of electronics, which accounted for 64% of all merchandise exports towards the end of 2022, and which grew at a faster rate than most other types), the manufacturing sector’s reasons to be cheerful are mainly to be found at home, in the domestic market.  Domestic demand is the real driver for change.

Exports in the IT-BPO (Business Processing Outsourcing) sector have also seen rapid growth, and overseas remittances from Filipino workers abroad continue to be an important factor in funding domestic consumer spending.

As Covid-19 restrictions eased in 2022, household spending has rebounded strongly.  Compared with the previous year, household consumption spending was up by 8% in Q3 2022; as a part of this, domestic demand is also driving a strong recovery in the tourism sector, which is forecast to return to pre-pandemic levels by 2024.

In the same period (year to Q3 2022), gross capital formation was up by 21.7% – in other words, this is a nation that is truly investing in itself right now: in plant, machinery, construction, schools, hospitals, and in other forms of infrastructure; it is investing in inventories too, ready to meet anticipated demand.

With opportunities across a wide range of sectors – not just electronics but from process industries to aviation, and from food packaging to printing – it’s not hard to see why the Philippines is increasingly becoming an arena in which European manufacturers want to be present.

A growing domestic economy, with increasing household consumer spending and capital formation; manufacturing export activity to a diverse and balanced collection of global markets (mainland China, the US, Japan, Hong Kong and the EU each account for between 10-16% of Philippine exports); the RCEP trade deal with favourable rules of origin that will help integrate cross-border supply chains in the region; a young, educated population; natural resources, including minerals and metals (most notably copper): together these constitute a solid foundation for growth. 

We look forward with anticipation to see what the next ten years will bring.

Melchers in the Philippines

Established in 1806, and with more than 150 years of experience in East Asia, Melchers is trusted by many international brands and producers to be their “feet on the ground” in this region’s diverse markets, drawing on deep local networks and knowledge, and combining them with dynamic business services and trade infrastructure, to create powerful synergies that deliver results for your business.

The Melchers Group has been doing business in the Philippines since the late 1980’s. Since then, Melchers Philippines has grown in step with the Philippine economy, and is trusted by many western manufacturers as their strong and reliable partner for business within the Philippine archipelago.

We are constantly looking for opportunities to expand into new business fields and growth markets.

If you are interested in working with us, contact us at: contact@melchers.de

#asiarevisited #Philippines #ASEAN #RCEP #economy

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