Philippines Monthly Economic Developments April 2017 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a  The World Bank growth forecast for the Philippines was maintained at 6.9 percent for 2017.  The Philippine stock exchange index (PSEi) edged slightly up in March while the peso stabilized above Php/US$50.00 amidst a less volatile foreign exchange market.  Headline inflation has steadily risen for seven consecutive months, inching up to 3.4 percent year-on-year in March.  Manufacturing activities gathered strength in February while capacity utilization rates eased for the second consecutive month.  February imports accelerated at its fastest pace in nine months, while exports improved.  Commercial bank lending continued to expand at around 18 percent year-on-year.  Largely due to weather-related effects in the agriculture sector, the unemployment rate increased in January to 6.6 percent from 5.7 percent a year ago. The World Bank growth forecast for the Philippines was forecasts for 2017, to 6.6 percent year-on-year by Standard & maintained at 6.9 percent for 2017. Despite continued global Poor Global Ratings, and to 6.8 percent by Fitch Ratings. headwinds, the Philippines’ growth outlook remains However, despite an improved performance of the PSEi, net- optimistic, and the economy is projected to benefit from the foreign selling persisted in March reaching Php11.8 billion, anticipated recovery of emerging markets and developing more than doubling the Php5.1 billion recorded in February. economies worldwide. The country is projected to remain The peso stabilized above Php/US$50.00 amidst a less among East Asia’s top growth performers over the short -to- volatile foreign exchange market in March. The Philippine medium term. The administration’s continued commitment to peso slightly appreciated 0.1 percent month-on-month from implementing planned increases in public infrastructure the February closing of Php/US$50.267, ending March at spending is expected to boost the economy’s growth Php/US$50.194. The foreign exchange market was also less momentum through 2017-2018. The World Bank projects a volatile, seeing the peso move within a shorter range: real GDP growth rate of 6.9 percent in 2017 and 2018, Php/US$0.24 in March vis-à-vis Php/US$0.64 in February. supported by high levels of consumer and business confidence. Central bank reserves decreased slightly to US$80.9 billion in These projections reflect the World Bank’s December 2016 March from US$81.4 billion in February, due to payments growth forecast for the Philippines and the January 2017 made by the government on maturing foreign exchange debt World Bank Global Economic Prospects report. obligations and central bank’s foreign exchange operations. The Philippines Statistics Authority revised the real GDP International reserves cover 8.9 months’ worth of imports of series for 2014-2016. The annual growth rate for 2016 was goods and payments of services, and are equivalent to 5.2 slightly revised upward from 6.8 percent to 6.9 percent. For times the country’s short-term external debt. 2015, real GDP growth was also revised upwards from 5.9 Headline inflation has steadily risen for seven consecutive percent to 6.1 percent. The 2014 annual growth was slightly months, inching up to 3.4 percent year-on-year in March. The lowered from 6.2 percent to 6.1 percent. Reportedly, these 12-month Consumer Price Index accelerated from 1.1 percent revisions reflect additional available data and are consistent a year ago and 3.3 percent in February 2017. Higher energy with international standard practices of national accounts and fuel prices drove this March inflation trend while food revisions. inflation eased to 4.0 percent year-on-year in March from 4.1 The Philippine stock exchange index (PSEi) edged slightly up in February. Core inflation continued to climb to 2.9 percent in March. In March 2017, the Philippine Stock Exchange index year-on-year from 2.7 percent in February, compared to 1.6 closed higher at 7,312, improving by 1.4 percent month-on- percent in March last year. The central bank’s monetary board month compared to a decline of 0.2 percent in February 2017. maintained its key policy rate at 3.0 percent during its March The stock exchange index received a boost from the US Federal 23 meeting. To-date the headline inflation rate remained Reserve’s decision to maintain a gradual tightening cycle. In within the central bank’s 2-4 percent target range. addition, both Standard & Poor Global Ratings and Fitch Ratings affirmed the country’s investment grade rating and positive outlook. They also raised their Philippines GDP growth PHILIPPINES Monthly Economic Developments | April 2017 Figure 1: The peso stabilized above Php/US$50.00 in March… Figure 2: … while headline and core inflation rates continued to rise. Source: Philippine Statistics Authority (PSA) Source: PSA Manufacturing activities gathered strength in February while February imports accelerated at its fastest pace in nine capacity utilization rates eased for the second consecutive months, while exports improved. Imports grew by 20.3 month. The volume of production index (VoPI) grew at 10.7 percent year-on-year in February 2017, more than double than percent year-on-year in February from 9.3 percent in January. the 9.1 percent growth reported in January. Import growth This double-digit growth was indicative of strong production was driven by strong domestic demand for both consumer activities in basic metals, petroleum products and transport goods and capital goods imports. In February, consumer goods equipment. The Nikkei ASEAN Manufacturing Purchasing imports, which account for nearly a fifth of total imports, Manager’s Index (PMI) rose to 53.8 in March from 53.6 in expanded by 21.5 percent year-on-year, fueled by growth in February as managers cited optimism based on strong food and passenger vehicles imports. Capital goods, which economic conditions, greater client demand and capacity account for nearly a third of the total import bill, recovered upgrades. Average capacity utilization rates remained high but strongly in February, growing by 18.0 percent year-on-year slowed down to 83.7 percent in February, reflecting its second after contracting by 11.0 percent in January. Meanwhile, consecutive month of decline from 83.8 percent in January and exports grew by 11.0 percent year-on-year in February 83.9 percent in December last year. Eleven out of the 20 major compared to 22.5 percent in January, expanding for the industries are operating at 80 percent or above capacity second consecutive month in double digits. This was led by a utilization, necessitating capital investment to address recovery in exports of electronics products, the country’s main capacity constraint. export commodity. Figure 3: Manufacturing activities gathered strength … Figure 4: … while exports continued to improve. VoPI 25 84 Feb-17 VaPI 83.9 Average Capacity Utilization Dec-16 20 Rate 83.8 Capacity Utilization (in percentage) Oct-16 In percent 83.7 15 83.6 Aug-16 In percentage 10 83.5 Jun-16 83.4 5 Apr-16 83.3 83.2 Feb-16 0 -40 -30 -20 -10 0 10 20 30 40 Apr-16 Jun-16 Feb-16 Aug-16 Dec-16 Feb-17 Oct-16 83.1 -5 83 Exports Imports Source: PSA Source: PSA PHILIPPINES Monthly Economic Developments | April 2017 Figure 5: The government recorded a fiscal surplus in January. Figure 6: Unemployment increased in January as the agriculture sector was hit with significant job losses. Source: Bureau of the Treasury Source: PSA The government’s fiscal balance ended in January with a minimal change from the 17.5 percent in January. Credit surplus. Revenues increased in January in nominal terms by growth at the firm level was primarily driven by substantial 9.9 percent year-on-year, registering a similar strong growth growth in the information and communication sector; the as in January 2016 (9.3 percent). This was in large part due to professional activities and arts, and the entertainment and the acceleration of tax revenue collections which expanded by recreation sectors. Meanwhile, non-performing loans as a 13.9 percent year-on-year in nominal terms, doubling from the share of the total loan portfolio for the Philippine banking 6.8 percent growth in January 2016. The Bureau of Internal system stood at 2.0 percent in January. The latest available Revenue (BIR) tax collection improved by 13.7 percent year- capital adequacy ratio of 15.6 percent indicates stability of the on-year in January 2017 (compared to 7.0 percent in January Philippines banking sector. 2016), while the Bureau of Customs (BOC) collection grew by Largely due to weather-related effects in agriculture, the 15.6 percent year-on-year (compared to 5.8 percent in January unemployment rate increased in January to 6.6 percent from 2016). Both agencies attribute collection improvements to 5.7 percent a year ago. Based on the January round of the reforms undertaken in improving tax compliance. Meanwhile, Philippines’ Labor Force Survey, a total of 1.3 million jobs were expenditure growth slowed slightly to 6.7 percent year-on- shed since January 2016, with two thirds of job losses in the year in nominal terms, compared to 7.3 percent a year ago, agriculture sector, including due to the damages caused by the largely due to a decline in interest payments. As a result, the recent typhoons Nina and Auring which hit the Philippines in government’s fiscal balance in January swung into a Php2.2 December 2016 and January 2017. Meanwhile, the services billion surplus compared to a Php3.4 billion deficit in January sector shed an estimated 466,000 jobs since January 2016 2016 while the primary balance increased further to Php44.6 mostly as a result of the loss of temporary election-related jobs billion. in the services sector. However, the underemployment rate Commercial bank lending continued to expand at around 18 showed a significant improvement in January, declining to 16.3 percent year-on-year. During February, both household and percent from 19.7 percent in the same period in 2016. This firm credit growth also remained in double-digits. Household translates into 1.6 million less underemployed workers and is credit increased to 24.6 percent year-on-year in February from the lowest January underemployment rate reported since 23.7 percent in January, given upticks in salary-based general 2006. consumption loans and motor vehicles loans. Firm credit grew by 17.6 percent year-on-year in February which represents a Please contact Birgit Hansl: bhansl@worldbank.org Prepared by a World Bank team under the guidance of Birgit Hansl, consisting of Kevin Chua, Kevin Thomas Cruz and Griselda Santos. PHILIPPINES Monthly Economic Developments | April 2017