In 2007, the Philippine economy turned in its best performance in over thirty years with its low inflation rate, low interest rates and a strong Philippine peso, whereas in 2008 there were already indications at the start of the year that it would be otherwise, and that proved to be true. Skyrocketing oil prices to record levels, high inflation rate and particularly, the global financial crisis which did not spare the Philippines all contributed to this turnover in the performance of the economy.

In 2008, the annual inflation rate averaged at 9.3%, it’s highest since 1998. The average was 6.5 per cent points higher than the previous year’s 2.8%. Early in the year, it soared to its highest level in fifteen months, a 7-year high of 12.5% in August but subsequently eased to 8.0 % in December, the lowest since April of that year, as food and energy prices started to decline.

The Peso ended 2008 at P47.52 versus the U.S. dollar, P6.24 weaker than the previous year, which had closed at a strong P41.18. Dropping 15.4% this year, the poor performance of the peso almost eroded the 19% gain posted in 2007.

The economy grew at its slowest pace in seven years as the Gross Domestic Product (GDP) slowed to 4.6% from a three-decade high of 7.2% in 2007. Likewise in 2007, foreign portfolio investments jumped by 35% reaching $3.5B by the end of the year, but by the middle of the year, investors started to pull out their funds resulting in a net outflow in portfolio investment of over $410M.

At the local stock market, after five years of continuous growth, the Philippine Stock Exchange index (PSEi) closed drastically on the negative side. Plunging 48.29% at the end of 2008 to 1,872.85 from 3,621.60 at the end of 2007, the market experienced massive sell offs by both local and foreign investors on negative news of the U.S. economic crisis. These troubles also affected virtually all the stock markets in the world.