The Philippines economy posted robustgrowth in early 2010, in part due to large one-off factors.As did many countries in the region, the Philippinesbenefited from a strong rebound in global trade.Manufacturing and investment activity expanded briskly as aresult. Private consumption continued to expand, as consumerconfidence improved. Growth also benefited fromelection-related spending. Expansionary (and nowpro-cyclical) fiscal policy continued to support growth.Despite a withdrawal of liquidity-enhancing measures and astronger peso, a closing output gap meant that monetarypolicy remained accommodative. A World Bank study ofPhilippines migration pattern during the global recessionreveals that deployment of overseas foreign workers (OFWs)actually accelerated during the crisis. Partly thisreflected the fact that the top OFW destinations were not asaffected as the rest of the world. The most affected OFWswere males, production workers (especially constructionworkers) and new hires. By contrast, females, servicesworkers, seafarers and rehires proved resilient to thecrisis or even benefited from it. Globally, less tolerancetowards weak public finances is expected, raising the needto introduce a credible medium-term fiscal consolidationplan for the Philippines. Running a pro-cyclical fiscalpolicy with relatively high debt and limited fiscal space-asundertaken in the first-half of 2010-raises risks and shouldbe reverted. Credibility towards such a goal could beachieved, for example, by designing a comprehensivemulti-year reform package. As the output gap closes, theaccommodative monetary policy introduced in 2008 would needto be gradually unwound, starting by reaching a broadlyneutral stance in 2010. An increase in policy ratescurrently negative or slightly positive could achieve such a goal.
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