Philippines Monthly Economic Developments June 2019 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • Manufacturing output continued its contraction for the fifth month in April. • Budget balance was positive in April as expenditures contracted by double digits. • Inflation picked up in May after consecutive declines since October 2018, driven by higher prices for vegetables, meat and fish. • Unemployment and underemployment recorded improvements in April 2019. Manufacturing output continued its contraction for the fifth lower than the 6.5 percent recorded in the same period last month in April. The volume of production index (VoPI) year. This decline was reversed following the market’ positive contracted by 14.0 percent in April 2019, a significant reversal response to the BSP’s announcement of the 200 basis points from the 21.0 percent expansion in April 2018. This contraction phased reduction in the reserve requirement ratio (RRR). is deeper than the 9.5 percent weakening in March and the Since then, the PSEi continued to rally until month-end. In May largest since the start of the year partly attributable to slowing 2019, net-foreign selling amounted to Php14.2 billion, external demand as the country’s exports experienced weaker reversing four consecutive months of net-foreign buying. growth. The contraction was led by manufacturing output The Philippine peso strengthened year-on-year in May. The decline in food, tobacco and petroleum products. Meanwhile, Philippine peso appreciated 1.1 percent year-on-year in May, the average capacity utilization rate marginally declined to closing at Php/US$52.10 from Php/US$52.69 in May 2018. 84.3 in April from 84.4 in March, with 11 of the 20 major Easing inflation, together with positive sentiment on the industries reporting at least 80 percent capacity utilization central bank’s policy on RRR, were factors contributing to the rates. Nonetheless, the Nikkei Philippines Purchasing strengthening of the peso. In May, the international reserves Managers’ Index (PMI) showed positive sign, rebounding to rose further to US$85.0 billion from US$83.9 billion in April. 51.2 in May from 50.9 in April, reversing its sixth month of This represented the seventh month of consecutive increase straight decline. A combination of increasing local demand and of the reserves. At its current level, the reserves can cover 7.5 improved export orders drove the rebound in the index. months’ worth of import and payment of services and primary The Philippine Stock Exchange index (PSEi) marginally edged income, higher than the preceding month’s 7.4 import up in May 2019. The PSEi rose by 0.2 percent month-on-month coverage. in end-May 2019, slower than the 0.4 percent increase Inflation picked up in May after consecutive declines since registered in April. After breaching the 8,000 mark early in the October 2018 but remained below BSP target. The 12-month month, the PSEi dipped to 7,475 in mid-May before recovering Consumer Price Index rose to 3.2 percent year-on-year in May to close at 7,970 by month-end. The temporary decline was from 3.0 percent in April, reversing the steady decline in due to the report of weak first quarter growth of 5.6 percent, inflation since the peak of 6.7 percent in October last year. On Figure 1: Manufacturing output further contracted in April. Figure 2: The Philippine peso strengthened year-on-year in May. 30 84.6 VoPI VaPI Average Capacity Utilization Rate 25 84.4 20 Capacity Utilization (in percentage) 15 84.2 10 In percentage 84 5 0 83.8 -5 83.6 -10 -15 83.4 Apr-18 Aug-18 Apr-19 Oct-18 Jun-18 Dec-18 Feb-19 Source: Philippine Statistics Authority (PSA) Source: Bangko Sentral ng Pilipinas (BSP) q PHILIPPINES Monthly Economic Developments | June 2019 an annual basis, the headline inflation is still lower than the 4.6 similar to the15.1 percent in March, as faster growth in credit percent recorded in May last year. Food inflation, driven by card loans and motor vehicle loans was slightly offset by the higher prices for vegetables, meat and fish, was the main slower expansion in salary-based general purpose contributor. This may have been caused by dry weather consumption loans and other types of household loans during condition which limited supplies. Excluding the volatile food the month. and energy items, core inflation also marginally rose to 3.5 The national government gained a budget surplus in April as percent year-on-year in May from 3.4 percent in April but expenditures contracted by double digits. Expenditures lower than the 3.6 percent in May last year. Year-to-date 2019 contracted by 15.1 percent year-on-year in nominal terms in headline inflation averages 3.5 percent while the year-to-date April, decelerating further from the 8.2 percent contraction in core inflation is 3.7 percent, both within the Central Bank’s 2 - March, due to the lingering impact of the reenacted budget. 4 percent target range. The monetary board in its meeting on Meanwhile, revenue collection grew by 0.4 percent year-on- May 16th decided to reduce the required reserve requirements year in nominal terms in April, lower than the 13.1 percent for universal and commercial banks by a total of 200 basis growth in March. The slower revenue growth was due to the points, with a 100 basis points reduction implemented on May growth contraction in non-tax revenues (25.7 percent) which 31, 50 basis points on June 28, and 50 basis points on July 26. offset the moderate growth in tax revenues (2.8 percent). Domestic liquidity and bank lending continued to grow in Consequently, the government gained a surplus of Php86.9 April. Domestic liquidity (M3) grew by 7.0 percent year-on- billion in the month of April, almost enough to compensate the year to about Php11.7 trillion in April, faster than the 6.1 Php90.2 billion deficit registered in the first quarter of 2019, percent (revised) expansion in March. Universal and thereby cutting the overall deficit to Php3.4 billion or only 0.3 commercial bank loans, net of reverse repurchase (RRP) percent of total revenues for the first four months of 2019. placements with the BSP, grew at a slightly slower rate of 12.7 Unemployment and underemployment rates both declined percent in April from 12.9 percent (revised) in March. Loans for in April 2019. Unemployment rate in April slightly improved to production activities—which comprised 88.2 percent of banks’ 5.1 percent from 5.2 percent in January 2019, but increased aggregate loan portfolio, net of RRP—increased at a slightly notably from the 5.5 percent rate in April 2018. A total of 1.35 slower pace of 12.4 percent in April from 12.8 percent in the million net jobs were created in the labor market in April, on previous month. The growth in production loans was driven an annual basis, mainly attributed to the net job creation in the primarily by lending to the following sectors: construction service (1.65 million) and industry (0.07 million) sectors, with (48.9 percent), financial and insurance activities (28.8 percent); the agriculture sector losing 0.38 million. The quality of jobs real estate activities (13.9 percent); wholesale and retail trade, has also improved as underemployment rate narrowed to 13.5 repair of motor vehicles and motorcycles (11.9 percent); percent in April from 15.6 percent in January 2019 and 17 electricity, gas, steam and air-conditioning supply (11.2 percent in April 2018. percent), and; manufacturing (10.7 percent). Meanwhile, loans for household consumption grew by 15.0 percent in April, Figure 3: Inflation picked up in May driven by food inflation. Figure 4: Labor market indicators showed improvements in April. Metro Manila Outside Metro Manila 9 25 Core Inflation Headline Inflation 8 7 20 underemployment rate 8.0 unemployment rate 7.0 6 6.0 In percent, YOY 15 5.0 5 4.0 4 3.0 10 2.0 3 1.0 2 Unemployment rate 5 0.0 -1.0 1 Underemployment rate -2.0 0 0 Nov-16 Feb-17 Nov-17 Feb-18 Nov-18 Feb-19 May-16 May-17 May-18 May-19 Aug-16 Aug-17 Aug-18 Source: PSA Source: PSA PHILIPPINES Monthly Economic Developments | June 2019 Selected Economic and Financial Indicators 2017 2018 Q3 2018 Q4 2018 Q1 2019 Mar-19 Apr-19 May-19 Real GDP growth, at constant market prices 6.7 6.2 6.0 6.3 5.6 Private consumption 5.9 5.6 5.2 5.3 6.3 Government consumption 7.0 12.8 14.3 12.6 7.4 Gross fixed capital investment 9.5 14.0 17.4 8.5 5.7 Exports, goods and services 19.5 11.5 13.3 14.4 5.8 Imports, goods and services 18.1 14.5 17.9 12.4 8.3 Industry Performance Value of Production Index -1.4 8.0 6.4 -1.4 -3.7 -5.4 -10.8 Volume of Production Index -0.5 7.2 5.2 -2.3 -7.3 -9.2 -14.0 Capacity Utilization 83.8 84.2 84.2 84.3 84.3 84.4 84.3 Nikkei Philippines Purchasing Managers' Index 53.2 52.5 51.6 53.8 51.9 51.5 50.9 51.2 Monetary and Banking sector Headline Consumer Price Index 2.9 5.2 6.3 5.9 3.8 3.3 3.0 3.2 Core Consumer Price Index 2.5 4.1 4.7 4.9 3.6 3.5 3.4 3.5 Domestic liquidity (M3) 13.3 11.6 10.3 8.7 7.1 6.1 7.0 Credit growth 17.8 16.4 17.2 15.1 11.9 11.0 12.2 Business loans 17.4 17.2 17.6 16.2 13.3 12.3 11.8 Consumer loans 20.5 15.1 14.2 11.3 10.0 10.6 10.9 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.2 -3.2 -4.4 -3.6 -2.1 -58.4 86.9 Total Revenue (% of GDP) 15.7 16.4 16.6 14.9 16.3 228.9 308.7 Tax Revenue (% of GDP) 14.2 14.7 15.2 13.6 14.6 198.3 288.9 Total Expenditure (% of GDP) 17.9 19.6 21.0 18.6 18.5 287.3 221.9 National government debt (% of GDP) 42.1 41.9 42.3 41.9 44.0 7,802 7,786 Stock market PSEi (month-end value) 8,558 7,466 7,277 7,466 7,921 7,921 7,953 7,970 External accounts Current account balance (% of GDP) -0.7 -2.4 -3.7 -2.6 Exports of merchandise goods (growth rate) 18.4 -0.3 -2.4 -0.7 -3.1 -2.5 0.4 Imports of merchandise goods (growth rate) 13.6 9.4 6.3 3.1 4.7 7.8 -1.9 Net foreign direct investment (in million US$) 10,057 9,802 2,234 1,712 1,941 586 Balance of payment (% of GDP) -0.3 -0.7 -2.4 3.0 International reserves (in million US$) 81,273 78,140 76,531 76,529 83,613 83,613 83,878 85,022 Import cover 8.4 7.1 6.8 6.7 7.4 7.4 7.4 7.5 Nominal exchange rate 50.40 52.68 53.54 53.27 52.36 52.41 52.11 52.26 Labor Market Unemployment rate 5.7 5.3 5.4 5.1 5.1 5.1 Underemployment rate 16.2 16.4 17.2 13.3 13.5 13.5 Sentiments Consumer confidence index (end of period) 9.5 -22.5 -7.1 -22.5 -0.5 -0.5 Business confidence index (end of period) 43.3 27.2 30.1 27.2 35.2 35.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Ray Gomez, Karen Lazaro, Jiyoung Song and Isaku Endo, under the guidance of Ndiame Diop. PHILIPPINES Monthly Economic Developments | June 2019 Contact Rong Qian (rqian@worldbank.org) for questions.