The Philippine economy started 2008 on a high note — it had just registered its highest real GDP growth rate in three decades of 7.2 per cent in 2007, which was significantly higher than the 6.1–6.7 per cent target set by the government. This was attributed to spending related to the May elections, which typically bolsters consumption expenditure; government expenditure on infrastructure projects; and personal consumption expenditure, supported by overseas Filipinos’ remittances. This despite a weakening external environment, particularly as a result of instability in U.S. and global financial markets.

As in previous years of inordinately strong economic performance, the question was whether it could be sustained in 2008 and beyond. But given the domestic factors that drove growth in 2007, and the real fallout from the U.S. and eventual global financial crises, some economic slowdown was to be expected in 2008. The question was how well the Philippine economy would cope with the impending U.S. and global recession.

In contrast, political controversies and disturbances that began in 2007 were carried over into 2008, in addition to those that began in earlier years. The continued strong performance of the economy despite continuing political instability has raised the question of whether economic performance has decoupled from political developments in the Philippines.

The article first discusses economic performance and trends in the Philippines in 2008, followed by a discussion of key political developments that could have had the most negative impact on the economy.

The Philippine Economy in 2008

Economic Growth and Sectoral Performance

Table 1 shows real GDP growth rate by type of expenditure for 2005–08. The period from 2002 was a period of steady, moderate growth, ranging from 4.4 per cent in 2002 to a high of 7.2 per cent in 2007 for real GDP, and from 4.2 per cent to 8 per cent for real GNP. Real GDP growth slowed down significantly to 4.6 per cent in the first three quarters of 2008, compared to 7.5 per cent during the same period in 2007.