Megatrends and the Philippine economy
The past half-century has seen Asia’s remarkable economic transformation, driven partly by policies and institutions promoting open trade and investment and partly by technological advancements—disruptive as they may be—that have facilitated an increasingly globalized, rules-based world order. However, a series of geopolitical and economic pressures that transcend national borders—called megatrends—are now reshaping the development landscape, threatening to erode the hard-earned gains of unprecedented growth and prosperity across the region’s emerging economies.
Among these megatrends are (1) the resurgence of trade protectionism, which is sidelining rules-based multilateralism; (2) escalating geopolitical tensions, including the rivalry among major economic superpowers, disrupting supply chains and markets; (3) deepening societal divides fueling social unrest and populist narratives; and (4) the rapid rise of artificial intelligence (AI) and its disruptive effects on labor markets. Additionally, (5) the accelerating pace of climate change and the costly energy transition pose significant challenges for small, open economies, while (6) rapid demographic shifts and an aging population increasingly affect even the region’s emerging economies.
The risk of further deterioration in the global economy remains high, driven by heightened geopolitical tensions and economic uncertainty.
Now, more than ever, regional and international cooperation is essential—particularly for smaller, open economies caught in the crossfire of competition between global giants, namely the United States and China. These economies must cooperate, fostering coordination and collaboration to uphold a rules-based, mutually beneficial approach to trade, investment, and technological advancement.
The Philippines has a great deal at stake in this collective effort. In the early 1960s, the country ranked among Asia’s highest in income per capita, trailing only Japan, Hong Kong, Malaysia, and Singapore. However, missteps in economic policy and political instability slowed its growth trajectory relative to its regional peers. As a result, the country largely missed the opportunities presented by the wave of globalization that surged from the 1970s to the 2000s.
Over the past three decades, however, the country has undergone significant, hard-won structural reforms that have steadily improved its development prospects. Encouraging macroeconomic trends in recent years have brought the Philippine economy closer to the dynamism of its East Asian neighbors. From 2010 to 2019, GDP growth averaged an impressive 6.4 percent annually—the strongest performance of any decade since the 1960s. Notably, the economy rebounded relatively swiftly from its sharpest contraction in 2020, triggered partly by the COVID-19 pandemic. With an average annual expansion of 6 percent over the past four years, the economy has demonstrated resilience despite numerous external and domestic challenges.
Today, the Philippine economy is broadly more open to business and investment and less vulnerable to external shocks than it was two or three decades ago. However, the same is true for many of its regional peers. This reality underscores the need for even more aggressive structural and policy reforms, particularly in areas that impact private investment, infrastructure, and human capital development. Strengthening these pillars is crucial to accelerating the transition toward a more dynamic, resilient, and sustainably prosperous economy.
To achieve this transformation, the economy must diversify beyond its long-standing reliance on household consumption. Private consumption has accounted for roughly two-thirds of GDP growth, heavily supported by the steady flow of remittances from over two million overseas Filipino workers, which have contributed around 8 percent of GDP in recent years.
Although investment has been gaining ground, export performance relative to imports has remained weak, resulting in a persistent negative contribution from the external sector to overall economic growth.
A more diversified economy will drive higher-quality job creation and accelerate poverty reduction. An environment conducive to global trade and investment is crucial to the country’s pursuit of sustainable and inclusive growth. This is precisely why the Philippines has a vested interest in regional efforts to maintain a rules-based economic order.
Finally, as the country navigates geopolitical and economic shocks, it must draw lessons from both its development history and that of its neighbors. Chief among these lessons is the importance of maintaining sound economic fundamentals to ensure that government responses to crises do not undermine the long-term objectives of sustainable growth and social inclusion.
(Arsenio M. Balisacan is secretary of the National Economic and Development Authority. The views expressed are solely those of the author and do not necessarily represent those of the institutions with which he is affiliated.)
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ambalisacan@neda.gov.ph
