Forecast: Will the Philippine economy stay resilient this 2024?

The financial services sector is likely to grow in 2024, albeit at a slower five per cent pace compared to last year’s seven per cent. Key trends business leaders ought to look out for are financial inclusion, digital adoption, and declining interest rates in the second half of the year. “Supportive frameworks have a pivotal role to play in unlocking growth in this sector to meet the ever-increasing demand from the financially underserved. For example, financial literacy programs and easier-to-access accounts—such as BDAs (basic deposit accounts)—are some measures that can help widen market access to financial services,” said McKinsey & Company in a report.

According to McKinsey & Company, the energy sector has the potential to grow by seven per cent in 2024 as the Philippines focuses on renewable energy development. As it stands, many stakeholders import liquefied natural gas (LNG) to meet power plant requirements as the Malampaya gas field declines—negatively impacting electricity prices. However, with the declaration of RA 11659 (which strengthens state support for private enterprises and investments in support of public services), foreign ownership limitations on exploration, development, and utilisation of renewable energy sources have been removed and could accelerate growth in this sector.

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The healthcare industry looks sickly in 2024, slowing to 2.8 per cent growth due to the shortage of healthcare workers. McKinsey & Company projects a massive 90,000 nurse shortage by 2028 while the demand for healthcare continues to grow rapidly. However, the pharmaceutical manufacturing sector may rebound with 5.2 per cent growth this year due to consumers becoming increasingly health-conscious. Overall, key enablers for growth include digitalisation, local research and development, and attracting talent to increase the supply of healthcare professionals.

The consumer goods and retail and wholesale sectors are projected to remain stable in 2024, at five per cent and four per cent, respectively, says McKinsey & Company. However, inflation continues to loom over Filipinos, keeping commodities at an elevated price throughout the year. A key trend in the Philippine economy is the prominence of online shopping and omnichannel e-commerce. A McKinsey Philippines consumer sentiment survey in 2023 found that 80 per cent of respondents purchase their products online. Business leaders looking to capitalise on this trend ought to invest in digital-first solutions while also adapting to shifting consumer preferences.

The manufacturing sector is one of the biggest contributors to the Philippine economy—employing around seven per cent of the country’s workforce and contributing about 19 per cent of GDP in 2022, with the services sector contributing the highest at 61.22 per cent. Currently, stakeholders are focused on building supply chain resiliency and self-sufficiency. Semiconductors drive approximately 45 per cent of Philippine exports, so leaders can find value in attracting new talent or upskilling and reskilling their staff to transform the country into a manufacturing hub.

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The information technology business process outsourcing (IT-BPO) sector has been a hot topic since the early ‘90s and its growth has not slowed down since. “The IT-BPO sector is on track to reach its long-term targets, with US$ 38 billion in forecast revenues in 2024,” says McKinsey & Company. Demand from global companies for offshoring is expected to increase and as remote-first work setups become the norm, the industry is projected to outperform headcount and revenue targets even more—cementing itself as a country leader for employment and services. McKinsey & Company advises leaders to adapt to new technologies like automation, artificial intelligence, and machine learning to stay ahead of the curve.

Due to the Philippines’ geography, the country is considered to be the fourth most vulnerable country to climate change in the world—with an estimated US$ 3.2 billion in annual losses because of natural disasters over the next five decades. McKinsey & Company highlights five green growth opportunities for growth:

• Renewable energy: The country could aim to generate 50 per cent of its energy from renewables by 2040, building on its high renewable energy potential and the declining cost of producing renewable energy.
• Solar photovoltaic (PV) manufacturing: More than a twofold increase in annual output from 2023 to 2030 could be achieved, enabled by lower production costs.
• Battery production: The Philippines could aim for a $1.5 billion domestic market by 2030, capitalising on its vast nickel reserves (the second largest globally).
• Electric mobility: Electric vehicles could account for 15 per cent of the country’s vehicle sales by 2030 (from less than one per cent currently), driven by incentives, local distribution, and charging infrastructure.
• Nature-based solutions: The country’s largely untapped total abatement potential could reach up to 200 to 300 metric tons of CO2, enabled by its biodiversity and strong demand.

While the Philippines has shown the fastest growth compared to other economies in Southeast Asia in 2023—and continues to do so in 2024, McKinsey & Company identifies three potential scenarios for the country’s growth in 2024.

• A slow GDP growth of 4.8 per cent can be expected should challenging conditions such as declining trade and higher inflation arise.
• Should inflation stabilise and global conditions a favourable, a projected 5.2 per cent GDP growth can be expected.
• The best case scenario is a 6.1 per cent growth in GDP if inflation slows and public policies are targeted to loosen key policy rates and offer incentive programs to boost productivity.

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