The Philippines is a dynamic economy with advantages that include a growing rate of urbanization, a young population, and an increasing share of the middle class. The country has seen a steady decline in poverty and social inequality.
According to the latest available World Bank data, in 2021, the percentage of citizens living below the poverty level set for lower-middle income states (less than US$3.65 per person per day) was 17.8%, with a Gini coefficient estimated at 0.407. In comparison, in 2000, 39.2% of the population lived below the poverty line, while the Gini coefficient was 0.477.
Prior to 2020, the country experienced stable economic growth of 6-7% per year, but the COVID-19 pandemic led to the largest recession in the Philippines, resulting in a 9.5% decline in real GDP. Moderate compared to pre-pandemic rates, recovery growth in 2021 was 5.7%, but with the full lifting of anti-epidemic restrictions in 2022, real GDP increased by 7.6%. This figure is one of the highest among developing countries after the economic downturn caused by the COVID-19 pandemic.
In 2023, the country showed a more moderate growth rate of 5.5% due to lower demand for Philippine goods from major trading partners and resulted in lower export earnings. The economy was also negatively impacted by high inflation and the resulting tight monetary policy of the Central Bank of the Philippines. Despite the slowdown, the growth rate was among the highest among Southeast Asian economies in 2023, indicating the resilience of the economy in the observed environment. Domestic consumption remains stable due to the relatively low unemployment rate, increased remittances from abroad, and the government's well-targeted subsidy policy aimed at reducing the negative impact of rising prices on the most vulnerable. In addition, the recovery in tourism has provided additional impetus to the services sector, which has also had a positive impact on overall macroeconomic performance.
The Philippines' real GDP is projected to grow by more than 6% in the medium term on the back of robust domestic demand supported by a stable labor market. It will also depend on the prospects of export recovery and lower inflation. If the macroeconomic situation becomes favorable, the Philippines may move into the group of upper-middle-income countries in the coming years. The World Bank also forecasts a further decline in the proportion of citizens living below the poverty line to 12.2% in 2024 and 9.3% in 2026.
Inflation in the Philippines started to increase in 2021 and peaked at 6.0% year-on-year by 2023. The main impact on the dynamics of the indicator was the rapid growth of rents, electricity and water tariffs, as well as the sharp rise in energy and food prices due to the COVID-19 pandemic. In addition, the depreciation of the Philippine peso by 10.6% against the US dollar in 2022 led to higher import costs and additional inflation. As a result, the Central Bank of the Philippines has tightened monetary policy significantly, with the key rate increased by 450 bps to 6.5% from April 2022 to October 2023.
By 2024, the rate of price growth in the country has slowed down and, according to forecasts, by the end of the year inflation will amount to 3.6%, which corresponds to the target range set by the Central Bank of the Philippines at the level of 2-4%. Against the background of stabilization of the indicator, the regulator began to gradually ease monetary policy, reducing the key rate by 25 bps to 6.25%.