Philippines growth model under strain from AI, structural hurdles – Manila Standard
The Philippines' growth model driven by remittances and business process outsourcing (BPO) is facing increasing strain, according to a new report from Oxford Economics subsidiary Alpine Macro.
The report warns that weak manufacturing, low productivity and restrictive foreign direct investment policies, coupled with the risk of artificial intelligence disruption, could lock the nation into a low-productivity equilibrium.
The warning follows a decision by the Bangko Sentral ng Pilipinas to hike its policy rate by 25 basis points. This made the Philippines the first emerging market to tighten in response to the oil shock, which compounded a growth drag caused by a sharp deterioration in the terms of trade.
Alpine Macro chief emerging markets strategist Yan Wang said the country's structural constraints are deeply intertwined.
"The very drivers of past success — remittances and BPO — are also limiting the country's ability to upgrade its growth model and move up the value chain," Wang said.
While remittances from overseas workers support household income and consumption, the report noted that persistent outmigration creates a structural brain drain that erodes domestic productive capacity.
The BPO industry, which contributes over 8 percent of GDP and about 65 percent of service exports, faces long-term disruption from AI.
The Philippines remains the world's second-largest outsourcing hub after India, but its heavy concentration in contact centers makes it vulnerable to automation.
Wang said the industry aims to shift from "labor arbitrage" to "intelligence arbitrage," but the transition remains uncertain due to a lack of investment in capital and human resources.
"Even if successful, the sector will inevitably become less labor-intensive, creating a structural headwind for employment," Wang said.
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