the philippines and asia 2012 economy: what’s going
TRANSCRIPT
National Economic and Development Authority 1
The Philippines and Asia
2012 Economy: What’s going
on?
The Philippines and Asia
2012 Economy: What’s going
on?
Core Logistics Conference 2012
4/F, Function Room, Board Room 3 New World Hotel, Makati City
National Economic and Development Authority 2
Outline of the Presentation
I. Recent Philippine Economic Performance
A. Real Sector
B. Monetary and External Sector
C. Fiscal Sector
II. Macroeconomic Outlook
A. Growth Assumptions
B. Global and Domestic Risks to Growth
C. Near-term Policy Directions
National Economic and Development Authority 3
I. THE PHILIPPINE ECONOMIC
PERFORMANCE
National Economic and Development Authority 4
Source: NSCB
The economy grew at a moderate pace in 2011
(growth rate, in %, at constant prices)
Indicator 2010 2011
GNI (%) 8.2 2.6
GDP (%) 7.6 3.7
Net Primary Income (%) 10.0 (0.9)
National Economic and Development Authority 5
Reasons for low growth in 2011
1External Shocks – MENA, high oil prices, Japan and Thailand disasters, Euro debt and economic woes, weak US economy, worldwide economic slowdown
2Government underspending, especially contraction in public construction amid process improvements and project reviews and good governance reforms
3 Base effects from election spending and rapid recovery in 2010
4 Typhoons and weather-related disturbances.
5
National Economic and Development Authority 6
Indicator FY
2010 2011GDP (%) 7.6 3.7
Agriculture (0.2) 2.6
Industry 11.6 1.9Manufacturing 11.3 4.7
Services 7.2 5.0
Household Consumption 3.4 6.1
Gov’t Expenditure 4.0 (0.7)Capital Formation 31.6 11.1
Public Construction 4.1 (29.4)
Private Construction 24.1 6.3
Exports 21.0 (3.8)Imports 22.5 1.9
Major sectors affected by external shocks...
6
National Economic and Development Authority 7
Major sectors affected by government
underspending...
7
Indicator FY
2010 2011GDP (%) 7.6 3.7
Agriculture (0.2) 2.6
Industry 11.6 1.9Manufacturing 11.3 4.7
Services 7.2 5.0
Household Consumption 3.4 6.1
Gov’t Expenditure 4.0 (0.7)Capital Formation 31.6 11.1
Public Construction 4.1 (29.4)
Private Construction 24.1 6.3
Exports 21.0 (3.8)Imports 22.5 1.9
National Economic and Development Authority 88
Indicator FY
2010 2011
Construction 17.5 (4.1)
Public 4.1 (29.4)
Private 24.1 6.3
Construction sector contracted
amid process improvements and
project reviews...
Source: NSCB
National Economic and Development Authority 9
Source: NSCB
Contribution to Real GDP Growth 2011
By ExpenditurePercentage Points
Contribution to Real GDP Growth
Major ContributorsMajor ContributorsMajor ContributorsMajor Contributors
Household Consump. 4.2
Capital Formation 2.3
Durable Equipt. 0.9
Private Cons. 0.4
Least ContributorsLeast ContributorsLeast ContributorsLeast Contributors
Exports of goods (2.2)
Public Construction (0.7)
Gov't Consumption (0.1)
By Industrial Origin Percentage Points
Contribution to Real GDP Growth
Major ContributorsMajor ContributorsMajor ContributorsMajor Contributors
Manufacturing 1.0
R.Estate/Renting/Bus.Acts 0.8
Other Services 0.7
Financial Intermediation 0.4
Trade 0.4
Least ContributorsLeast ContributorsLeast ContributorsLeast Contributors
Construction (0.4)
Utilities (0.1)
Forestry (0.1)
National Economic and Development Authority 10
ITEMS
Working Age Pop ula tion ('000) 60,717 61,882
Labor Force Level ( '000) 38,893 40,005
(g rowth ra te, %) 2.6 2.9
Not in the La bor forc e 21,823 21,878
LFPR( %) 64.1 64.6
Labor Entrants ('000) 1,002 1,112
(g row th ra te, %) (7.7) 10.9
Emp loyment Level ('000) 36,035 37,192
(g row th ra te, %) 2.8 3.2
Emp loyment Ra te (in %) 92.6 93.0Employment by No. of Hours Worked ('000)
Less than 40 hrs. a week 12,654 13,448
(g row th ra te, %) (2.3) 6.3
40 Hrs. and Above 22,906 23,257
(g row th ra te, %) 6.3 1.5
Emp loyment by Class of Workers ('000)
Wage and Sa la ry Workers 19,627 20,537
(g rowth ra te, %) 5.1 4.6
Self-emp loyed w /o any pa id emp loyee 10,858 10,994
(g rowth ra te, %) 1.2 1.3
Emp loyer in own-family opera ted fa rm/bus.1,394 1,355
(g rowth ra te, %) (3.1) (2.8)
Unpa id family Workers 4,157 4,305
(g rowth ra te, %) (1.5) 3.6
Emp loyment Genera ted ('000) 974 1,157
(g rowth ra te, %) 0.1 18.8
Agric ulture (87) 310
(g rowth ra te, %) (754.7) 457.3
Industry 305 132
(g rowth ra te, %) 574.6 (56.8)
Manufac turing 140 49
(grow th ra te, %) 533.3 (64.9)
Servic es 755 715
(g rowth ra te, %) (17.4) (5.3)
Unemp loyment Level ('000) 2,859 2,814
Unemp loyment Ra te (%) 7.3 7.0
Underemp loyment Level ('000) 6,762 7,164
Underemp loyment Ra te (%) 18.8 19.3
20112010
FY FY
Labor Market
“The labor market performed better in
2011 as the country generated more
employment compared a year ago.
Employment level rose by 1.157
million, largely on the strength of the
continued growth in services and the
recovery in agriculture – albeit the
slowdown in industry .”DOLE-BLES, Labstat, Vol. 16 No. 1 http://bles.dole.gov.ph/PUBLICATIONS/LABSTAT%20UPDATES/vol16_1.pdf
National Economic and Development Authority 11
Philippine inflation still within target
Source: National Statistics OfficeNote: 2012 inflation data reflects January 2012 only
National Economic and Development Authority 12
Philippine Peso remains stable
Source: Bangko Sentral ng Pilipinas
0.00
0.00
0.01
0.01
0.02
0.02
0.03
0.03
41
41
42
42
43
43
44
44
45
45
03-Jan-11
17-Jan-11
31-Jan-11
14-Feb-11
28-Feb-11
14-M
ar-11
28-M
ar-11
11-Apr-11
25-Apr-11
09-M
ay-11
23-M
ay-11
06-Jun-11
20-Jun-11
04-Jul-11
18-Jul-11
01-Aug-11
15-Aug-11
29-Aug-11
12-Sep-11
26-Sep-11
10-Oct-11
24-Oct-11
07-Nov-11
21-Nov-11
05-Dec-11
19-Dec-11
02-Jan-12
16-Jan-12
30-Jan-12
13-Feb-12
volatility (rhs) Peso/US$ (lhs)
21 Feb 2012: US$1 = Php 42.498 Volatility: 0.014%
National Economic and Development Authority 13
-60
.0-4
0.0
-20
.00
.02
0.0
40
.06
0.0
Merchandise Exports (y-o-y growth)
Merchandise Imports (y-o-y growth)
Dec 2011 -20.69%
Nov 2011 0.68%
Mixed developments in trade and remittances
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
0.5
1.0
1.5
2.0
US$ billion (lhs) growth rate (rhs)
Source: Bangko Sentral ng PilipinasSource: National Statistics Office
OF RemittancesMerchandise Exports and Imports
National Economic and Development Authority 14
Net inflows of foreign investments continue
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
BSP Registered Net FPI, US$ million
Jan 2012 US$ 586.01mn
0
500
1,000
1,500
2,000
2,500
3,000
2000 2002 2004 2006 2008 2010
Net FDI, US$ million
Jan-Nov 2011
US$782mn
Source: Bangko Sentral ng Pilipinas
National Economic and Development Authority 15
Build-up of foreign reserves continues
$77.0 bn
11.3
6.9
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0
10
20
30
40
50
60
70
80
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
GIR(lhs, US$ bn)
months worth of imports (rhs)
Short-Term External Debt Cover** (rhs)
Source: Bangko Sentral ng Pilipinas; *As of end- 2011 **based on residual maturity
*As of January 2012
National Economic and Development Authority 16
Fiscal deficit within program as of November 2011
NG CASH OPERATIONS REPORTJan – Nov % Change Program*
2010 2011 (y-o-y) 2011
REVENUES 1,104.8 1,249.8 13.1 1,357.3
Tax Revenues 998.3 1,105.0 10.7 1,225.1
BIR 753.3 849.5 12.8 935.5
BoC 233.5 243.0 4.1 276.4
Other Offices 11.5 12.5 9.0 13.2
Non-Tax Revenues 106.5 144.8 36.0 132.2
EXPENDITURES 1,374.6 1,346.0 -2.1 1,617.9
SURPLUS/(DEFICIT) -269.8 -96.3 64.3 260.7
NET FINANCING 269.8 96.3 -64.3 -
Net external borrowings 126.3 57.0 -54.9 -
Net domestic borrowings 210.2 42.7 -79.7 -
Change in cash 82.6 -130.9 -258.6 -
* Revised with Disbursement Acceleration Program (October 2011 DBCC)
National Economic and Development Authority 17
II. OUTLOOK
National Economic and Development Authority 18
FY 2012 Growth Outlook (Supply Side)(growth rate, in %, at constant prices)
Actual 2012 Assumption*
2010 2011 Low High
Agriculture (0.2) 2.6 4.1 5.0
Industry 11.6 1.9 5.6 6.6
Services 7.2 5.0 4.9 5.9
GDP 7.6 3.7 5.0 6.0
GNI 8.2 2.6 4.0 5.0
*DBCC approved only the GDP growth rate. Assumption details may still change.
National Economic and Development Authority 19
FY 2012 Growth Outlook (Demand Side)(growth rate, in %, at constant prices)
Actual 2012 Assumption*
2010 2011 Low High
HH Cons. 3.35 6.1 4.6 5.6
Govt. Cons. 4.0 (0.7) 4.0 4.6
Investment 31.61 11.1 8.9 10.2
Total Exports 21.0 -3.8 8.4 9.3
Total Imports 22.5 1.9 9.7 10.4
*DBCC approved only the GDP growth rate. Assumption details may still change.
National Economic and Development Authority 20
Growth Assumptions:
Government Expenditure:
� More efficient and faster process due to the implementation
of bureaucratic reforms in budget management and
administration initiated in 2011.
� Accelerated budget execution process
�Per DBM, 99.6% of the budget for PS and 90.4% for MOOE have
already been released 1/
1/ as of January 17, 2012
National Economic and Development Authority 21
Reform-Minded Administration with Focus on Good
GovernanceGood governance agenda with emphasis on fiscal discipline, transparency and accountability
� Prudent fiscal controls coupled with intensified revenue collection efforts over the past year have laid the framework for efficient budgetary allocation in 2012
� Tax reform measures including the proposed hike in the Sin tax (alcohol and tobacco product taxes) and the rationalization of fiscal incentives aim to further improve the fiscal position
� Tighter prioritization of expenditures through the Zero Based Budgeting approach, improved composition of expenditures and quality of government services
� Rigorous implementation of RATE, RATS, RIPS programs to go after evaders, smugglers, corrupt officials, respectively, have improved tax collection
� Contracts and public tenders are now posted on public websites to instill transparency in the procurement process
� Set-up BIR key performance indicators and publish actual results; establish appropriate performance standards and evaluations
� Enacted the GOCC Governance Act of 2011 which lays the groundwork for enhanced discipline in GOCCs
� Set up the Debt Management Office at the Department of Finance which is tasked to formulate and oversee the implementation of the Republic’s debt management strategy
Key Reforms Instituted by the Administration
Fiscal DisciplineTransparency and
Accountability
Source: BSP-IRO
National Economic and Development Authority 22
Focus on Good Governance Yielding ResultsROP is showing improvement on several governance and competitiveness indicators
Source: BSP-IRO based on World Bank , Transparency International and WEF
*World Bank Governance Indicators and Transparency International values are for the year 2010 / World Economic Forum Rankings values are from the 2011/2012 report data
2009/2010 2010/2011* Change
World Bank Government Effectiveness Indicator 51 52 1 percentile
Transparency International – Corruption Perceptions Index
139 134 5 places
World Economic Forum (“WEF”) Competitiveness Rankings
Overall 85 75 10 places
Institutions 125 117 8 places
Macro environment 68 54 14 places
Higher Education and Training 73 71 2 places
Goods and Market Efficiency 97 88 9 places
Technological Readiness 95 83 12 places
Financial Market Development 75 71 4 places
Business Sophistication 60 57 3 places
Innovation 111 108 3 places
National Economic and Development Authority 23
FitchMoody's S&PBaa
3
Ba1
Ba2
Ba3
B1
B
B-
Last upgraded to BB+ (June 23, 2011)
Last upgraded to BB (November
12, 2010)
Last upgraded to Ba2 (June 15, 2011)
“The national government recorded a
small fiscal surplus, building upon the
notable turnaround in fiscal
management seen during 2H 2010.
Much of the improvement has been
attributed to the progress made in
fiscal consolidation by the new
Aquino administration”
“The strength of the Philippines’
external balance sheet and
favorable growth trajectory support
the sovereign credit ratings on the
country. Structural strengths of the
current account appear sufficiently
well entrenched”
“The upgrade in June reflects
progress on fiscal consolidation
against a track record of macro
stability, broadly favourable
economic prospects and
strengthening external finances”
BBB
-
BB+
BB
BB-
B+
B
B-
BBB
-
BB+
BB
BB-
B+
B
B-
S&P: Positive Outlook (December 16, 2011)
Source: Moody’s, S&P, Fitch taken from IRO presentation
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Progress Has Been Recognized by the Rating AgenciesROP credit ratings are in rising trajectory
National Economic and Development Authority 24
� Philippines CDS implied-ratings of the ROP continue to climb and is now at Baa2 according to Moody’s, BBB+ according to S&P and BBB according to Fitch
� The bond implied-rating of the Philippines as calculated by Moody’s is Baa1, a staggering 4 notches difference from the actual Ba2 rating
� This gap between bond-implied and actual rating is the largest in the world according to the data provided by Moody’s
� The message from the markets is clear: the Philippines is the most underrated country in the world
Sources: Moody’s “Market Signals Sovereign Risk Report”, GS Research taken from IRO presentation
Philippines Colombia Panama Peru Indonesia Costa Rica Mexico Malaysia Korea Thailand
Actual Rating Bond Implied-Rating
B1
Ba3
Ba2
Ba1
Baa3
Baa2
Baa1
A3
A2
A1
Aa3
Baa1 Baa1Baa1
Baa1Baa1
A1
A3A3
Baa1Baa1
Baa2
Baa3 Baa3Baa3 Baa3 Baa3 Baa3
Ba2
Baa1
100
150
200
250
300
350
Feb-1
0
Mar-
10
Apr-
10
May-
10
Jun-1
0
Jul-10
Aug-1
0
Sep-1
0
Oct-
10
Nov-
10
Dec-1
0
Jan-1
1
Feb-1
1
Mar-
11
Apr-
11
May-
11
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-
11
Nov-
11
Dec-1
1
Jan-1
2
Indonesia 5 year CDS Level Philippines 5 year CDS Level
Baa2
Under-rated Over-rated
The Markets Recognize ROP’s StrengthThe market’s verdict is clear: the Republic’s ratings should be higher
The Republic’s risk perception outperforms higher rated peers
According to Moody’s bond implied-ratings, the Philippines is the most underrated country in the world
National Economic and Development Authority 25
Growth Assumptions: (cont’d)
Investments:
� Early release of funds for infrastructure projects
� 72.1% or PhP150.2 billion allocation for capital outlays has already
been released to agencies like DPWH, DA, DepEd
• Sixteen (16) projects under PPP are already in the pipeline
� Estimated to cost PhP 140.8 billion
National Economic and Development Authority 26
Project Title
1. PPP for School Infrastructure Project
2. Vaccine Self-Sufficiency Project Phase II
3. LRT Line 2 East Extension and O&M Privatization
4. NLEX-SLEX Connector Road
5. O&M of Puerto Princesa Airport Development Project
6. Grains Central Project
7. O&M of Laguindingan Airport Development Project
8. Modernization of the Philippine Orthopedic Center
PPP Projects as of February 2012
Source: PPP Center
National Economic and Development Authority 27
Project Title
9. New Bohol (Panglao) Airport Development Project
10. Mactan-Cebu International Aiport Passenger Terminal Building
11. CALA Expressway (Cavite and Laguna Side)
12. Common Automatic Fare Collection System
13. New Water Supply Source Project
14. O&M of AHEPP Auxilliary Turbines 4&5
15. Balara Water Hub
16. Establishment of Cold Chain Systems Covering Strategic Areas in the
Philippines
PPP Projects as of February 2012
Source: PPP Center
National Economic and Development Authority 28
Global and Domestic Risks to Growth� External Risks
oBalance sheet issues and weak consumption in the US
oFiscal problems and sluggish output in the Eurozone
� Internal Risks
oWeak industry output
o Damages in agriculture and infrastructure due to
natural calamities
o Timely and effective implementation of Disbursements
Acceleration Program
National Economic and Development Authority 29
ITEMS 2010 2011 2012 2013 2012 2013
World Output 1 5.2 3.8 3.3 3.9 –0.7 –0.6
Advanced Economies 3.2 1.6 1.2 1.9 –0.7 –0.5
United States 3 1.8 1.8 2.2 0 –0.3
Euro Area 1.9 1.6 –0.5 0.8 –1.6 –0.7
Japan 4.4 –0.9 1.7 1.6 –0.6 –0.4
United Kingdom 2.1 0.9 0.6 2 –1.0 –0.4
Canada 3.2 2.3 1.7 2 –0.2 –0.5
Other Advanced Economies 2 5.8 3.3 2.6 3.4 –1.1 –0.3
Emerging and Developing Economies 3 7.3 6.2 5.4 5.9 –0.7 –0.6
Central and Eastern Europe 4.5 5.1 1.1 2.4 –1.6 –1.1
Commonwealth of Independent States 4.6 4.5 3.7 3.8 –0.7 –0.6
Developing Asia 9.5 7.9 7.3 7.8 –0.7 –0.6
China 10.4 9.2 8.2 8.8 –0.8 –0.7
India 9.9 7.4 7 7.3 –0.5 –0.8
ASEAN-5 4 6.9 4.8 5.2 5.6 –0.4 –0.2
Latin America and the Caribbean 6.1 4.6 3.6 3.9 –0.4 –0.2
Middle East and North Africa (MENA) 5 4.3 3.1 3.2 3.6 . . . . . .
Sub-Saharan Africa 5.3 4.9 5.5 5.3 –0.3 –0.2
Memorandum
European Union 2 1.6 –0.1 1.2 –1.5 –0.7
World Growth Based on Market Exchange Rates 4.1 2.8 2.5 3.2 –0.7 –0.4
World Trade Volume (goods and services) 12.7 6.9 3.8 5.4 –2.0 –1.0
Imports
Advanced Economies 11.5 4.8 2 3.9 –2.0 –0.8
Emerging and Developing Economies 15 11.3 7.1 7.7 –1.0 –1.0
Exports
Advanced Economies 12.2 5.5 2.4 4.7 –2.8 –0.8
Emerging and Developing Economies 13.8 9 6.1 7 –1.7 –1.6
Commodity Prices (U.S. dollars)
Oil 6 27.9 31.9 –4.9 –3.6 –1.8 –3.1
Nonfuel (average based on world commodity
export weights)
26.3 17.7 –14.0 –1.7 –9.3 2.2
Consumer Prices
Advanced Economies 1.6 2.7 1.6 1.3 0.2 –0.1
Emerging and Developing Economies 3 6.1 7.2 6.2 5.5 0.3 0.4
London Interbank Offered Rate (percent) 7
On U.S. Dollar Deposits 0.5 0.5 0.9 0.9 0.4 0.3
On Euro Deposits 0.8 1.4 1.1 1.2 –0.1 –0.4
On Japanese Yen Deposits 0.4 0.4 0.5 0.2 0.2 0
Year over Year
Projections
Difference
fromSeptember
2011 WEO
Projections
Source: IMF WEO, Jan 2012
“Growth in emerging and
developing economies is
also expected to slow
because of the worsening
external environment and a
weakening of internal
demand.”
National Economic and Development Authority 30
Asia is still on the grip despite the
sluggish global demand
� Deceleration of growth for Asia is due to the weak
external demand
� Financial contagion from Europe remains to be of
concern for Asia
� Potential strong policy response are available in the
event of further slowdown
National Economic and Development Authority 31
Near-term Policy Directions
� Stimulating domestic demand
o Sustaining domestic consumption
o Securing investments
� Accelerating fiscal spending and infrastructure outlays
� Diversifying domestic and external trade
� Strengthening economic relations with fast-growing ASEAN
economies; seizing the opportunity from China rebalancing
National Economic and Development Authority 32
Average GDP Growth, First 10 Years of Demographic Window (%)Demographic Windows* in Asia
*Defined as the period when population under 15 years old drops below 30%
and population over 65 years old is less than 15%.
The youngest population in Asia supports a strong medium-term economic growth outlook
Sources: BSP IRO based on the UN World Population to 2030, UN World Population Prospects (2010 Revision), IMF World Economic Outlook, Japan Cabinet Office
� The median age in the Philippines is only 22.2 years, well below other “young” countries in Asia, such as Malaysia (25), India (25.1), Indonesia (27.8) and Vietnam (28.2)
� According to United Nations’ population projections, the Philippines will enter its Demographic Window in 2015, when the proportion of the population that is of working age is particularly prominent
� The Philippines is the last major Asian economy to benefit from this demographic dividend, which is typically associated withaccelerated economic growth
� Extended periods of high GDP growth in Asia’s fastest-growing economies have coincided with countries entering their Demographic Windows*
� On average, growth over the 10-year period following the beginning of the Demographic Window has been 7.3%
A Promising Future Lies AheadThe Philippines is the last major economy in Asia to enter its demographic “sweet spot”
2050
2050
2045
2040
2040
2030
2025
2020
2015
2015
1995
2015
2010
2010
2005
2005
1995
1990
1985
1980
1980
1965
1960 1980 2000 2020 2040 2060
Philippines
India
Malaysia
Vietnam
Indonesia
Thailand
China
Korea
Singapore
Hong Kong
Japan
**Thailand is an exception, as its Demographic Window began in 1995, and thus
its high-growth period was interrupted by the Asia Financial Crisis of 1997-98
10.3
9.08.2 8.1 7.8
7.47.0
6.25.4
3.3
0
2
4
6
8
10
12
Chin
a
Kore
a
India
Japan
Sin
gapore
Hong K
ong
Vie
tnam
Indonesia
Mala
ysia
Thaila
nd**
National Economic and Development Authority 33
The Philippines and Asia
2012 Economy: What’s going
on?
The Philippines and Asia
2012 Economy: What’s going
on?
Core Logistics Conference 2012
4/F, Function Room, Board Room 3 New World Hotel, Makati City