Philippines Monthly Economic Developments March 2019 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • Inflation slowed down for the fourth consecutive month in February. • Merchandise exports contracted for the third consecutive month in January, while merchandise import growth remained subdued. • The Philippine Stock Exchange index (PSEi) retreated to below 8,000 in February. • Inflation slowed down for the fourth consecutive month in Merchandise exports contracted for the third consecutive February 2019. The 12-month Consumer Price Index slowed month in January 2019, while merchandise import growth down to 3.8 percent year-on-year in February 2019 from 4.4 recovered. Merchandise exports fell by 1.7 percent year-on- percent in January and 3.8 percent in February 2018. This is year in January, much less than the 12.3 percent decline the fourth consecutive month of easing inflationary pressure, posted in December 2018. The fall in export revenue was bringing the year-to-date headline inflation to 4.1 percent, driven by a contraction of 2.5 percent year-on-year of marginally above the upper bound of the Central Bank’s 2 -4 manufactured goods exports, which make up over 80 percent percent inflation target range. The decelerating inflation was of total export revenue. Meanwhile, merchandise import mainly driven by slower price increases of key food items such growth expanded by 5.8 percent year-on-year in January 2019, as rice, meat, and vegetables, as did non-food items such as a sharp reversal from the 9.4 percent contraction in December transport services, and rent and utilities. Core inflation also 2018. The rebound of imports was driven by the sharp growth decelerated to 3.9 percent in February from 4.4 percent in recovery in consumer imports (19.1 percent year-on-year in January, suggesting a weaker underlying price pressure. Jan 2019 vs -12.1 percent in Dec 2018) and capital goods imports (8.9 percent year-on-year in Jan 2019 vs -10.6 percent The peso marginally appreciated and gross international in Jan 2018). As a result, the Philippines posted a USD3.8 billion reserves increased moderately. The peso stood at merchandise trade deficit in January, which is wider than the Php/US$52.01 in February 2019, appreciating by 0.7 percent USD3.2 billion deficit posted in January 2018. month-on-month and 0.1 percent year-on-year. Expectations of further inflation easing, record high remittance in Manufacturing activities extended its decline in January December, and the central bank’s steady policy stance 2019. The volume of production index (VoPI) contracted at a contributed to gains in the value of the peso, despite the more moderate pace at 4.1 percent in January 2019 from a lingering current-account deficit. The gross international 10.1 percent contraction in December 2018. This was, reserves (GIR) increased moderately by 0.5 percent to US$82.9 however, a reversal from the 10.8 percent expansion in billion as of end-February 2019. This represents 7.3 month s’ January last year. Twelve of the 20 major industry groups worth of imports of goods and payments of services and registered output declines including basic metals, furniture primary income, still lower than 7.5 months’ worth a year ago. and fixtures, and fabricated metal products. Average capacity Figure 1: The Philippine peso marginally appreciated in Figure 2: Headline and core inflation further declined in February. February. 55.0 54.0 53.0 52.0 PHP/US$ 51.0 50.0 49.0 48.0 47.0 Source: Bangko Sentral ng Pilipinas Source: Philippine Statistics Authority (PSA) PHILIPPINES Monthly Economic Developments | March 2019 utilization remains at 84.3 with more than half of the major GDP) and personnel services spending (5.7 percent of GDP). industries operating at least 80 percent capacity. The Nikkei Meanwhile, revenue growth remained robust despite softer Philippines Purchasing Managers’ Index (PMI) grew at its GDP growth, as the tax ratio reached its highest level in more weakest in six months. It fell to 51.9 in February from 52.3 in than two decades (14.7 percent of GDP), partly driven by tax January, but still higher than the 50.8 in February last year. policy and administration reforms introduced in the TRAIN This decline has been driven by slower growth in new orders, law, and as non-tax revenues exceeded the programmed and with some firms reporting higher overall costs. target for 2018. As a result, the fiscal deficit widened from 2.2 percent of GDP in 2017 to 3.2 percent of GDP in 2018—above The Philippine Stock Exchange index (PSEi) retreated to the government’s deficit target of 3.0 percent of GDP for 2018. below 8,000. After reaching the 8,000 level in mid-January Despite the wider fiscal deficit, the Philippine government’s 2019, the PSEi dropped 3.8 percent month-on-month to close overall fiscal position remains healthy as the national at 7,705 in end-February 2019. The local stock index government’s debt-to-GDP ratio fell from 42.1 percent of GDP responded to recent developments on the external front such in 2017 to 41.9 percent of GDP in 2018. as the slow progress on trade negotiations between the U.S. and China, and the resurfacing of the poor global growth Unemployment rate slightly rose and underemployment prospects. The index slid further towards the end of February worsened. Unemployment rate marginally rose to 5.2 percent due to the rebalancing of the MSCI Philippines index. The MSCI in January 2019 from 5.1 percent in October 2018, still a slight Philippines Index, which is designed to measure the improvement from the 5.3 percent recorded in January 2018. performance of the large and mid-capitalization segments of On an annual basis, the labor market suffered net job losses the Philippines’ equity market, underwent its quarterly totaling 387,000 in January 2019, largely due to significant rebalancing. The rebalancing cut the weighting of several key agriculture sector job losses (1.7 million), unabated by the jobs stocks, resulting in portfolio adjustments by investors which created in the industry (0.6 million) and services (0.7 million). contributed to a 2.3 percent decline in the PSEi on the last In addition, the quality of jobs remains a concern as it persists trading day of February. Despite the decline in the PSEi, net- at relatively high levels. Underemployment rate increased foreign buying remained strong for the second consecutive from 13.3 percent in October 2018 to 15.6 percent in January month, totaling Php9.3 billion in February 2019, although half 2019, but it is significantly lower than 18.0 percent registered the Php18.7 billion in January 2019. in January 2018. Although fiscal deficit exceeded its programmed target in 2018, fiscal position remains healthy. National government expenditure breached the programmed target in 2018, reaching 19.6 percent of GDP, the highest level in more than three decades. Robust expenditure growth was fueled by the continued surge in infrastructure spending (4.6 percent of Figure 3: The fiscal deficit breached its programmed target in Figure 4: Both unemployment and underemployment rates 2018. increased in January 2019. 25.0 3.5 Fiscal balance (Percent of GDP) 19.6 2.5 20.0 17.6 17.9 16.7 16.4 1.5 Percent of GDP 15.8 15.2 15.7 15.0 0.5 -0.5 -0.9 10.0 -1.5 -2.4 -2.2 -2.5 5.0 -3.2 -3.5 0.0 -4.5 2015 2016 2017 2018 Revenues Expenditure Fiscal Balance (RHS) Source: Bureau of the Treasury Source: PSA PHILIPPINES Monthly Economic Developments | March 2019 Selected Economic and Financial Indicators 2017 2018 Q2 2018 Q3 2018 Q4 2018 Dec-18 Jan-19 Feb-19 Real GDP growth, at constant market prices 6.7 6.2 6.2 6.0 6.1 Private consumption 5.9 5.6 5.9 5.2 5.4 Government consumption 7.0 12.8 11.9 14.3 11.9 Gross fixed capital investment 9.5 14.0 21.2 17.4 9.8 Exports, goods and services 19.5 11.5 12.6 13.3 13.2 Imports, goods and services 18.1 14.5 18.5 17.9 11.8 Industry Performance Value of Production Index -1.4 8.0 16.0 6.4 -1.4 -9.3 -0.7 Volume of Production Index -0.5 7.2 14.8 5.2 -2.3 -10.1 -4.1 Capacity Utilization 83.8 84.2 84.3 84.2 84.3 84.3 84.3 Nikkei ASEAN Purchasing Managers' Index 53.2 52.5 53.1 51.6 53.8 53.2 52.3 51.9 Monetary and Banking sector Headline Consumer Price Index 2.9 5.2 4.8 6.3 5.9 5.1 4.4 3.8 Core Consumer Price Index 2.5 4.1 3.8 4.7 4.9 4.7 4.4 3.9 Domestic liquidity (M3) 13.3 11.6 13.4 10.3 8.7 9.2 7.6 Credit growth 17.8 16.4 17.9 17.2 15.1 13.6 12.4 Business loans 17.4 17.2 18.1 17.6 16.2 15.0 14.7 Consumer loans 20.5 15.1 16.5 14.2 11.3 10.1 9.5 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.2 -3.2 -0.9 -4.4 -3.6 81.0 Total Revenue (% of GDP) 15.7 16.4 18.2 16.6 14.9 232.2 Tax Revenue (% of GDP) 14.2 14.7 16.1 15.2 13.6 206.0 Total Expenditure (% of GDP) 17.9 19.6 19.2 21.0 18.6 313.3 National government debt (% of GDP) 42.1 41.9 42.5 42.3 41.9 7,293 Stock market PSEi (month-end value) 8,558 7,466 7,194 7,277 7,466 7,466 8,007 7,705 External accounts Current account balance (% of GDP) -0.7 -3.6 -3.7 Exports of merchandise goods (growth rate) 18.4 -1.8 -1.3 2.5 -2.4 -12.3 -1.7 Imports of merchandise goods (growth rate) 13.6 13.4 20.0 19.5 6.3 -9.4 5.8 Net foreign direct investment (in million US$) 10,256 9,802 3,550 2,251 1,712 677 Balance of payment (% of GDP) -0.3 -2.5 -2.4 International reserves (in million US$) 81,273 78,140 78,779 76,531 76,529 79,193 82,487 82,896 Import cover 8.4 7.1 7.2 6.8 6.7 7.0 7.3 7.3 Nominal exchange rate 50.40 52.68 52.45 53.54 53.27 52.77 52.47 52.19 Labor Market Unemployment rate 5.7 5.3 5.5 5.4 5.1 5.2 Underemployment rate 16.2 16.4 17 17.2 13.3 15.6 Sentiments Consumer confidence index (end of period) 9.5 -22.5 3.8 -7.1 -22.5 -22.5 Business confidence index (end of period) 43.3 27.2 39.3 30.1 27.2 27.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, Ray Gomez, and Isaku Endo, under the guidance of Ndiame Diop. PHILIPPINES Monthly Economic Developments | March 2019 Contact Rong Qian (rqian@worldbank.org) for questions.