Being an election year, it was commonly expected that the Philippine economy would grow faster in 2004 compared to the year before. In fact, the expectation was more than realized. Not only did actual economic growth as measured by growth in gross domestic production (GDP) exceed that of 2003, it also went beyond the targets set by the government for the year. Moreover, the economy's growth compared favourably with that of most of its neighbours in the region.

But GDP growth was only one yardstick for the economy. The quality of the growth achieved was put to question by a significant acceleration in prices and increased joblessness within the year. Meanwhile, the government's precarious financial position owing to heavy indebtedness continued to be the weakest link in the economy, prompting economists from the University of the Philippines (UP) to sound the alarm by the third quarter that the country was in the midst of a fiscal crisis threatening to turn into an Argentina-style collapse, unless the government took prompt corrective actions. The alarm resonated and dominated discussions and debates for the rest of the year. But the government response was far from adequate by most assessments, including and especially by the international credit rating agencies.

By year-end, Fitch Ratings and Standard and Poor's had announced widely expected one-notch downgrades on the country's credit rating, telling the world, in effect, that the country's ability to pay for its debts was getting more and more questionable. These moves were seen as formal expressions of the external audience's dissatisfaction with the way the Philippine government was addressing current threats to the stability of its economy. But contrary to most analysts' prognoses of dire effects arising from such downgrades, the opening weeks of 2005 saw a surging stock market and a fast appreciating peso, seemingly reflecting improved, not worsened, confidence in the domestic economy. In a moment of jubilation, President Gloria Macapagal-Arroyo declared that the economy was “on a roll”. But the euphoria was promptly dampened by a severe two-notch credit downgrade by Moody's in February, further confusing the already mixed signals on the economy.