Philippines Monthly Economic Developments April 2019 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • The World Bank projects economic growth to recover to 6.4 percent in 2019. • 5.7 million Filipinos were lifted out of poverty between 2015 and 2018. • The national government registered a budget deficit in February, reversing the surplus of January. The World Bank projects real economic growth to recover to subsidy, and social pension for indigenous senior citizens 6.4 percent for the Philippines in 2019. Growth this year will contributed to poverty reduction. be supported by a rebound in private consumption growth as Declining food prices led to inflation slowdown in March. The inflation declines and election-related activities give an added 12-month Consumer Price Index fell to 3.3 percent year-on- boost. Investment spending will initially be tempered due to year in March 2019 from 3.8 percent in February. This was the budget approval delay and pre-election spending ban on driven by lower rice price due to increasing import flows and new construction projects but is expected to recover in the production from the summer harvest season, as well as lower second half of the year. Net export is expected to be a drag on prices for key food products such as fish, fruits and vegetables. growth however, due to weak global growth and trade outlook Meanwhile, transport inflation increased in March as a result in a context of continued robustness in imports. The positive of higher international oil prices. Excluding the volatile food growth outlook, together with the delivery of social programs, and energy items, core inflation dropped to 3.5 percent in will contribute to poverty reduction. March from 3.9 percent in February. Year-to-date headline More Filipinos were lifted out of poverty between 2015 and inflation fell to 3.8 percent while core inflation fell to 3.9 2018. About 5.7 million Filipinos have been lifted out of percent, within the Central Bank’s 2-4 percent target range. poverty as the poverty incidence fell to 21.0 percent in the first The Philippine Stock Exchange index (PSEi) inched up in half of 2018 from 27.6 percent in the first half of 2015. The March. The PSEi rose by 2.9 percent month-on-month in end- poverty alleviation is attributed to sustained economic growth. March 2019, to close at 7,920, recovering from a 3.8 percent In particular, the creation of jobs in the construction and drop in February. Positive investor sentiment was fueled by manufacturing sectors largely contributed to the increase in improving domestic conditions, as inflation steadily eased, and household incomes, more remarkably for the bottom 30 the 2019 national budget transmitted to the president after percent of households. Moreover, improved implementation much delay. The PSEi also tracked the positive movements in and wider coverage of social programs such as the conditional regional stock exchanges as the U.S. Federal Reserve kept rates and unconditional cash transfers to poor households, rice steady. The PSEi rebound was supported by net-foreign buying for the third consecutive month, totaling Php4.7 billion in Figure 1: Real GDP is expected to grow above 6.0 percent in Figure 2: Poverty alleviation continued in the first half of 2018. 2019-2021. 9.0 70 Forecast H1 2015 H1 2018 8.0 60 7.0 50 Population Poverty Incidence 6.0 40 Percent 5.0 30 4.0 (In percent) 3.0 20 2.0 10 1.0 0 Region III CAR Caraga NCR Region VIII Region IX Region I Region II Region VII Region IV-A Region IV-B Region V Region VI Region X Region XII Region XI ARMM Philippines 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 April 2019 projections January 2019 projections Actual growth Source: Philippine Statistics Authority (PSA) and WB staff projections Source: PSA PHILIPPINES Monthly Economic Developments | April 2019 March, although less than half the Php9.3 billion net-foreign The national government registered a budget deficit in buying in February. February, reversing the surplus of January. Despite operating on a re-enacted budget, public expenditures expanded by 21.0 The Philippine peso weakened in March while international percent year-on-year in nominal terms in February, recovering reserves climbed to a 29-month high. The peso depreciated from the 7.2 percent contraction in January. Spending growth by 1.5 percent month-on-month in March and closed at was fueled by the release of the January internal revenue Php/US$52.78 from Php/US$52.01 in end-February. On an allotments to local government units, which was delayed into annual basis, the peso depreciated 1.1 percent against the February. National government revenues expanded by double dollar. The weakening of the peso was partly due to the digits for the first time in four months, fueled by strong growth widening current account deficit and protracted uncertainties in both tax and non-tax revenues. Although tax revenues over U.S.-China trade deal. In March, the gross international expanded faster in February than in January in nominal terms reserves rose to US$83.2 billion from US$82.9 billion in the (12.1 percent compared to 7.7 percent), fiscal deficit widened previous month, its highest level since September 2016. At this to reach Php76.4 billion, a reversal from the surplus of Php44.5 level, the reserves can cover 7.3 months’ worth of imports and billion in January. On a cumulative basis, the fiscal deficit for payments of services and primary income. Personal the first two months of 2019 remains 23 percent less than in remittances were recorded at US$2.8 billion in January 2019, 2018, a likely reflection of the budget delay. growing by 3.4 percent which was slower than the 10.8 percent growth in January 2018. The growth of domestic liquidity and bank lending moderated in February. Preliminary data show that domestic Merchandise exports contracted for the fourth consecutive liquidity (M3) grew by 7.1 percent year-on-year to about month, while merchandise import growth remained subdued Php11.5 trillion in February. This was slower than the 7.7 in February. Merchandise export growth contracted by 0.9 percent expansion in January 2019. While demand for credit percent year-on-year in February, compared to the 6.7 percent eased, it remained the principal driver of money supply growth. contraction in January. The slowdown was driven by the Domestic claims increased by 11.7 percent in February from continued weakness of manufacturing exports, which 12.4 percent in the previous month mainly due to the represent more than 80 percent of total export. Meanwhile, sustained growth in credit to the private sector. Outstanding merchandise import growth expanded by 2.6 percent in loans of universal and commercial banks, net of reverse February, slower than the 3.6 percent growth in January. The repurchase (RRP) placements, grew at a slower rate of 13.7 slowdown in imports was driven by the contraction of raw percent in February from 15.3 percent in January. materials and intermediate goods imports, which was not offset by the relatively robust growth in capital goods imports. As a result, the Philippines registered a US$2.8 billion merchandise trade deficit in February, narrower than the US$3.9 billion deficit in January. Figure 3: Both headline and core inflation continue their Figure 4: Exports contracted for the fourth consecutive month, downward trajectories. while import growth remained subdued. Metro Manila Outside Metro Manila Core Inflation Headline Inflation Feb-19 8.0 Dec-18 7.0 6.0 Oct-18 In percent 5.0 In percent, YOY 4.0 Aug-18 3.0 Jun-18 2.0 1.0 Apr-18 0.0 -1.0 Feb-18 -2.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 Mar-16 Mar-17 Mar-18 Mar-19 Sep-16 Dec-16 Sep-17 Dec-17 Sep-18 Dec-18 Jun-16 Jun-17 Jun-18 Exports Imports Source: PSA Source: PSA PHILIPPINES Monthly Economic Developments | April 2019 Selected Economic and Financial Indicators 2017 2018 Q2 2018 Q3 2018 Q4 2018 Jan-19 Feb-19 Mar-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 -0.7 -5.1 Volume of Production Index -0.5 7.2 14.8 5.2 -2.3 -4.1 -8.5 Capacity Utilization 83.8 84.2 84.3 84.2 84.3 84.3 84.3 Nikkei Philippines Purchasing Managers' Index 53.2 52.5 53.1 51.6 53.8 52.3 51.9 51.5 Monetary and Banking sector Headline Consumer Price Index 2.9 5.2 4.8 6.3 5.9 4.4 3.8 Core Consumer Price Index 2.5 4.1 3.8 4.7 4.9 4.4 3.0 Domestic liquidity (M3) 13.3 11.6 13.4 10.3 8.7 7.6 Credit growth 17.8 16.4 17.9 17.2 15.1 12.4 Business loans 17.4 17.2 18.1 17.6 16.2 14.7 Consumer loans 20.5 15.1 16.5 14.2 11.3 9.5 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.2 -3.2 -0.9 -4.4 -3.6 44.5 -76.4 Total Revenue (% of GDP) 15.7 16.4 18.2 16.6 14.9 256.7 202.1 Tax Revenue (% of GDP) 14.2 14.7 16.1 15.2 13.6 235.0 182.6 Total Expenditure (% of GDP) 17.9 19.6 19.2 21.0 18.6 212.2 278.5 National government debt (% of GDP) 42.1 41.9 42.5 42.3 41.9 7,494 7,451 Stock market PSEi (month-end value) 8,558 7,466 7,194 7,277 7,466 8,007 7,705 7,921 External accounts Current account balance (% of GDP) -0.7 -2.4 -3.6 -3.7 -2.6 Exports of merchandise goods (growth rate) 18.4 -0.3 -1.3 -2.4 -0.7 -6.7 -0.9 Imports of merchandise goods (growth rate) 13.6 9.4 20.0 6.3 3.1 3.6 2.6 Net foreign direct investment (in million US$) 10,057 9,802 3,528 2,234 1,712 609 Balance of payment (% of GDP) -0.3 -0.7 -2.5 -2.4 3.0 International reserves (in million US$) 81,273 78,140 78,779 76,531 76,529 82,487 82,896 83,199 Import cover 8.4 7.1 7.2 6.8 6.7 7.3 7.3 7.3 Nominal exchange rate 50.40 52.68 52.45 53.54 53.27 52.47 52.19 52.41 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 -0.5 Business confidence index (end of period) 43.3 27.2 39.3 30.1 27.2 35.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, Ray Gomez, and Isaku Endo, PHILIPPINES Monthly Economic Developments | April 2019 under the guidance of Ndiame Diop. Contact Rong Qian (rqian@worldbank.org) for questions.