The economy of the Philippines is a free market economy in Southeast Asia and one of the newly industrialized emerging market economies of the world. It is the fastest-growing economy in the Southeast Asia posting a real GDP growth rate of 7.3% in the year 2007. It was also ranked as 25th largest economy by International Monetary Fund according to purchasing power parity. Despite of this development the Philippines still offers characteristic of a developing country. In spite of the considerable progress made in recent years the economy still have many features of a typical Third World country. The population is increasing at an explosive rate (1.764% annually, one of the highest in Asia) and is predominantly agricultural, with a swollen tertiary sector (distribution and service trades). The disproportionate growth of Metro Manila, which now has 40% of the country's urban population, is an extreme case of the considerable regional imbalances, not only between different islands (Visayas and Mindanao having a privileged position compared with the rest of the archipelago) but also in different parts of Luzon, wherein certain provinces of are still backward and neglected, practising traditional farming methods and sometimes without roads, piped water supply or electricity. Port facilities and the road network are inadequate, in spite of the substantial amount of work done in recent years: As of 2000, the combined length of Philippine roads was 29,055 km, however, only 10,336 km or 36% of these roads are surfaced, and in the rainy season traveling is difficult, even on Luzon. At present, there is an oversupply of energy in the country however, only 87% of the 41,945 barangays (villages) in the whole archipelago have electricity. The average income per head has improved considerably but is still low; the average daily rate is 325 Php while the average coast of living per day is 544 Php. This figure mask the enormous difference between a powerful landowning oligarchy and the great mass of impoverished small peasants.

The important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, electronics and automobile parts. Mining also has a great potential in the Philippines, and recent natural gas discovery add to the country's substantial energy reserves.

Agriculture
Agriculture, along with fishing and forestry provides a living for 46% of the population and accounts for 13.8% of the Gross National Product (GNP) of the Philippines as of 2007. In many areas, like the Cagayan valley, Ilocos plain, Bicol region on Luzon and the central part of Cebu, the land has suffered severe erosion as a result of the heavy rainfall and large-scale forest clearance. There is, however, good soil in areas with volcanic deposits and recent alluvium and on certain sedimentary rocks. Arable farmland comprises more than 16 million hectares, over 9 million are under cultivation, and of these 70% are devoted to subsistence crops. Commercial crops take second place in importance.

Among subsistence crops, rice, the staple food of the Philippines, accounts for some 3.5 million hectares, despite of this the country is the world's 4th largest importer of rice, after Indonesia, Nigeria and Iran.

In 1990, rice accounted for 27% of value added agriculture and 3.5 percent of GNP. Various cultivation methods are in use. A small part of the total crop is produced without the use of irrigation, including some grown under the archaic slash-and-burn system (caingin) which is still employed for all food crops in the Cordilleras of Luzon. In this method part of the forest is burned down, so that the soil is broken up by the fire and enriched by the ash; the seed was sown with a kind of hoe, and after some years of cropping until the soil was depleted the farmers move on to another site. This is one of the main causes of the destruction of the forests in mountain and hill regions. More usually the rice grown without irrigation comes from fields which are plough with a rudimentary plough drawn by a carabao.

Most of the country's rice, however, is grown in irrigated fields, either in the plains (rice-fields cover, for example, most of the central plain of Luzon) or on terraces, like those of the Bontocs, Ifugaos and Kalingas in the Cordillera Central of Luzon. The terraces are constructed and maintained by joint effort, using very ancient techniques, like the changa system in which the whole able-bodied population of one or more villages, using rudimentary implements clear a stretch of mountainside, divert the upper course of a small stream to the place where the terraces are to be constructed and build a dam of stones and beaten earth at the foot of the slope. The water flowing down the hillside carries down the finer particles of soil, which are then caught by filtration in the dam. The soil is then carried up again on the peasants' backs and used to form the terraces and the depressions in which the rice will later be planted. Given the violent rainfall and the frequent cyclones in these areas, it is easy to imagine the immense care and effort involved in constructing and maintaining these rice fields, relatively unproductive as they are.

In the Philippines as a whole, rice yields were very modest until the 1960s, with one crop a year in non-irrigated fields and two crops a year with irrigation. In the last two decades or so, considerable progress has been made. The area occupied by rice-fields has been increased with the development of irrigation, made possible by the construction of a number of large dams like the Agno and Magat Dams on Luzon. In addition experimental stations have been set up at Los Baños (Laguna), where under the aegis of the International Rice Research Institute and with financial assistance from the United States, new species of miracle rice (IR-8, IR-5), with three times the previous yield, have been developed. Thus it is now possible in the Manila plain to obtain three crops a year, in spite of the rudimentary implements used and the antiquated methods of cultivation, frequently on a collective basis. Just before the harvest the peasant selects part of his field (punlaan) to take the plants for the next crop. While the young shoots are developing he prepares the rest of his field, ploughing, pulverizing and fertilizing the soil, all this with the help of carabaos. After about three weeks the field is irrigated, and the shoots are taken from the punlaan, tied in small bundles known as bugkos and handed over to the planting-out teams, who traverse the field in lines. After another three or four month, the peasant weeds the field from time to time and applies a final dressing of fertilizer, the water is drained off and the harvest can begin. The rice is cut with a special knife (yatab), tied in sheaves of palay, loaded on to sleds drawn by carabaos and brought back to the village, where the sheaves are dried and the rice is threshed and husked and finally laid out to dry in front of the house sometimes on the very edge of the road.

Maize, which occupies 3.3 million hectares, is another subsistence crop particularly in Cebu, Leyte, Negros, the Visayas and northern Mindanao. Production is sufficient for the country's needs, with up to four crops a year in certain areas, though it is frequently still grown by the relatively unproductive caingin method, in association either with non-irrigated rice or with other food crops like manioc, beans or sweet potatoes (camotes).

European visitors may be surprised to find in the supermarkets of Makati (Manila's shopping district) all kinds of temperate vegetables and fruits. These come from the mountainous provinces in the Cordillera Central, particularly in the Benguet, area near Sagada, the same terraces which serve as rice-fields in Ifugao territory are used to grow temperate crops: hence the mountains of cabbages and potatoes to be seen in Manila.

Cash crops grown for export also play an important part in the agriculture of the Philippines. Sugar-cane is at present in a state of crisis as a result of the collapse of world sugar prices. It is grown mainly by small tenant farmers or sharecroppers, but land reform has not yet made any real inroads on the large plantations, American- or Filipino-owned, in the central Visayas (Negros, Panay, Cebu). The Philippines produce 47% of the world output of copra, the dried kernel of the coconut; this comes mainly from south-eastern Luzon and Mindanao. Formerly almost the whole output was exported, factories for the treatment of copra and coconut oil are now being developed on the spot, particularly in Mindanao. The Philippines also have a practical world monopoly of abaca or Manila hemp, which comes from the family of Musaceae (banana family) and is used mainly in the manufacture of ropes for shipping.

Tropical fruits like pineapples and bananas, grown mainly on Mindanao (pineapples in the Cagayan de Oro area), are exported principally to Japan. Tobacco is one of the oldest established commercial crops in the archipelago, having been introduced by Spanish missionaries in the 16th century. Cigar tobacco (used in the much esteemed Manila cheroots) is mainly grown in the middle Cagayan valley in rotation with maize. More recently cigarette tobacco (Virginia) has been developed in the northern part of the central plain and on the Ilocos plain; in the latter area, around Vigan almost every farm is flanked by its tobacco-drying tower, of varying design and material (frequently bamboo). Other commercial crops, of minor importance, are coffee, maguey (a kind of agaves), ramie, kapok and rubber.

Most of the produce, both subsistence and commercial crops, comes from small holdings. In contrast to other tropical countries, there are very few large plantations of several thousand hectares. One of the largest such estates, 6,000 hectares of pineapples in northern Mindanao, is owned by the Philippine Packing Corporation, a subsidiary of the California Packing Corporation, better known as Del Monte; it is a world on its own, with its own schools, hospitals and shops. The normal peasant holding is small (between 3 and 4 hectares on average), and does not usually own the land: he is a sharecropper on a large hacienda, paying a high rent (ranging between 30% and 70% of his crop), heavily indebted and with a wretchedly low standard of life. The land reform which made a timid beginning in 1963 has largely foundered on the resistance of the powerful landowning oligarchy. The result has been a steady drift of population from the country to the towns, particularly Manila.

Fishing and Forestry
With its 7,107 islands, the Philippines has a very diverse range of fishing areas. The abundant resources of the sea are bit exploited. At present, the Philippines is one of the largest producers of tilapia, tuna, shrimp and prawns. Fishing techniques are frequently primitive, following traditional methods, and the catches mainly go to meet only local needs. Notwithstanding good prospect for agricultural sector the marine fishing industry continue to face a bleak future due to fishing methods, lack of funds and inadequate support of the government.

The country's forest resources, on the other hand, have been substantially reduced by over-felling, mainly for the export of undressed timber. In view of the catastrophic results of deforestation in terms of erosion the government is now strictly regulating forestry working and developing a reforestation policy.

Industry
With the country's varied natural wealth and the progress made in recent years the industry of the Philippines is now developing at a faster pace.

The power supply potential is quite considerable: numerous dams have been built on suitable rivers, some of them supplying hydroelectric power stations (e.g. on the Angat, the Agno and the Magat), though these supply only 5% of the country s electricity. Volcanism offers substantial geothermal resources. The Philippines geothermal energy provides 27% of the country's total electricity production generated by power plants.; oil has been discovered, particularly on Palawan; the nuclear power station on Bataan, is the only nuclear power plant in the Philippines, however, after 30 years, the structure has never produced one watt of power.

Until recent years Filipino industry took two main forms the processing of minerals or tropical products for export and the production of ordinary consumption goods (textiles, foodstuffs, craft articles). While not neglecting these types of light industry, which, particularly in Manila, provide employment for a host of small businesses - workshops producing wooden or cane furniture; the craftsmen who produce the famous capiz chandeliers made from a shell paste; clothing and shoe factories; light engineering, etc. The government is now seeking to take advantage of the abundant supply of cheap labour and the influx of foreign capital attracted by the development of banking to promote industries producing goods for export or to replace imports, including the chemical industries (petrochemicals, cement, paper pulp, fertilizers), engineering (car assembly), etc. Some of the recently established industrial plants, particularly in southern Mindanao, are Japanese factories which have been transferred to the Philippines because of the pollution they caused. The chief exports are electronics and telecommunications equipment, lumber and plywood, machinery, garments, coconut products copper and sugar with Japan and United States as the chief trading partners.

The Philippines construction industry is predominantly public-sector driven. Building, one of the most active sectors of industry (accounting for 7% of the gross national product), has been fostered by the government's programme of large-scale public works the establishment of new industrial centres, ports and irrigation, the construction of roads and upgrading about 20 airports, the development of new districts in Manila with their large hotels, offices and banks. This entire infrastructure is designed to make Manila a new financial, commercial and political centre for Asia, in the same way as Hong Kong and Singapore, and an important transit centre for tourists. As of 2006 census, the number of visitors to the archipelago is increasing at the rate of some 14% a year. If fast growing the potential for tourism to create investment and jobs and add to GDP growth rate of the country is enormous.

Tourism
The tourism industry plays an ever increasing role for the economy of the Philippines. According to the Department of Tourism (DOT) some 1.992 million foreign visitors visited the Philippines in 2000, and the country accumulated a total of 2.1 billion U.S. Dollars in foreign exchange. Most of the international tourists are from North America and East Asia (Japan, Korea, Taiwan, and China) but more and more are visiting from, Australia, Europe and even Central and South America. In 2004 the tourist arrivals were 2,291,347; in 2005 2,623,084 were recorded; while in 2006, they reached 2,843,335. Base on this statistics, the number of visitors to the archipelago is increasing at the rate of 14% a year. If the actual trend in tourist arrivals continues, the potential for tourism to attract investment, create jobs and add to GDP growth rate of the country is enormous.

Mining
The soil of the Philippines also contains large resources of metal ores: the copper of central Cebu and northern Luzon, the chromium of the Zambales Mountains (the principal world source of refractory chrome) and the gold-mines in the Cordillera Central of Luzon are already being worked on a large scale. As of 2001 the country produced 30.9 metric tons of gold and 27.5 metric tons of silver. The extraction of nickel and iron ore in south-eastern Luzon and on Samar is developing rapidly. Deposits of mercury, zinc, manganese and silver have been located but so far have not been exploited. Most of the minerals are exported, mainly to Japan and the United States, which have financial and technical control of many of the mining companies.

In spite of the considerable progress made in many fields, however, serious economic problems persist. Agriculture is still carried on by archaic traditional methods, industrialization is sporadic, and economic development mainly concentrated in Manila and has not kept pace with population growth. In consequence there is a high unemployment rate, which affects also the better educated sections of the population.