Philippines Monthly Economic Developments February 2019 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • Economic growth slowed in Q4 2018, bringing the full-year growth rate to 6.2 percent. • Both manufacturing activities and merchandise exports contracted in December 2018. • Inflationary pressures abated for the third consecutive month in January. • Congress ratified the 2019 national government budget of Php3.757 trillion on February 8, 2019. Economic growth reached 6.1 percent, year-on-year, in Q4 from Php2.2 billion in net foreign buying in January 2018 and 2018, lower than the growth of 6.5 percent in Q4 2017. As a Php0.7 billion in net foreign selling in December 2018. result, the full-year growth rate fell from 6.7 percent, year-on- Nevertheless, the PSEi contracted by 8.6 percent, year-on-year, year, in 2017 to 6.2 percent in 2018—below the government’s in January 2019. 6.5-7.0 percent target range. Private consumption drove The Philippine peso slightly appreciated in January while the growth in Q4 2018, expanding by 5.4 percent, year-on-year, level of gross international reserves rose substantially. The significantly lower than the rate of 6.2 percent in Q4 2017. peso appreciated 0.7 percent, month-on-month, from Public consumption growth moderated to 11.9 percent in Q4 Php/US$52.72 in December 2018 to Php/US$52.35 in January 2018 from 12.2 percent in Q4 2017. Fixed capital formation 2019. External factors such as the U.S. Federal Reserve’s softer growth remained broadly the same, expanding by 9.8 percent policy stance contributed to the massive inflow of foreign in Q4 2018, similar to the 9.4 percent in Q4 2017, driven by the funds into the local stock market. Yet, the peso depreciated 1.8 growth acceleration in construction. Also, net-exports percent, year-on-year, in January relative to the dollar. continued to be a drag on economic growth, as export growth Moreover, gross international reserves reached US$82.13 outstripped import growth in Q4 2018. billion in January—their highest level since May 2017— The Philippine Stock Exchange index (PSEi) breached 8,000 in increasing by 3.7 percent, month-on-month, and 1.1 percent, the beginning of 2019 for the first time since Q2 2018. The year-on-year. The upsurge was attributed to Bangko Sentral ng PSEi reached 8,007 in January, up from 7,466 in December Pilipinas’ (BSP) income from foreign investments, foreign 2018—an increase of 7.3 percent. The local stock market exchange operations, the national government’s foreign became relatively more buoyant due to a more upbeat currency deposits, and gains from the rise in the international domestic outlook, from easing inflation since Q4 2018 and as price of gold (although these were all marginally offset by investors expect increased domestic activity prior to the payments for servicing the government’s foreign exchange general elections in May 2019. The U.S. Federal Reserve’s obligations). The current level of gross international reserves decision to pause in the interest rate tightening cycle also covers 7.2 months’ worth of imports of goods and payment of contributed to the hike in Philippine stock market through services and primary income. substantial net-foreign buying of Php18.6 billion in January, up Figure 1: Economic growth slowed to 6.1 percent, year-on- Figure 2: The PSEi hit 8,000 in January for the first time since the year, in Q4 2018. Q2 2018. 9500 45 9000 35 8500 25 8000 PHP billion Index 7500 15 7000 5 6500 (5) 6000 Net Foreign Buy (RHS) PSEi 5500 (15) 2017/1/31 2017/2/28 2017/3/31 2017/4/30 2017/5/31 2017/6/30 2017/7/31 2017/8/31 2017/9/30 2018/1/31 2018/2/28 2018/3/31 2018/4/30 2018/5/31 2018/6/30 2018/7/31 2018/8/31 2018/9/30 2019/1/31 2017/10/31 2017/11/30 2017/12/31 2018/10/31 2018/11/30 2018/12/31 Source: Philippine Statistics Authority (PSA). Source: Philippine Stock Exchange. PHILIPPINES Monthly Economic Developments | February 2019 Merchandise exports fell sharply in December while imports continued to expand in the beginning of 2019, driven by the contracted for the first time in seventeen months. growth of new orders and a modest rise in purchasing activities. Merchandise exports contracted by 12.3 percent, year-on-year, Nevertheless, while the PMI rose from 51.7 in January 2018 to in December 2018—a reversal from the 8.4 percent growth 53.2 in December 2018, it fell to 52.3 in January 2019. recorded in the same month a year ago and worse than the Inflationary pressures abated for the third consecutive mere 0.3 percent contraction in November 2018. The sharp month in January. The 12-month Consumer Price Index decline was driven by the fall in electronics exports (which slowed further to 4.4 percent year-on-year in January, the accounted for 59.2 percent of total exports), from growing by third month of consecutive decline. An improvement in the 15.0 percent, year-on-year, in December 2017 to contracting country’s food supply contributed to a decline in food inflation, by 1.6 percent and 15.2 percent in November and December from 6.3 percent in December 2018 to 5.1 percent in January 2018, respectively. Meanwhile, merchandise imports 2019, partly driven by lower rice prices due to increased rice contracted by 9.4 percent, year-on-year, in December 2018, imports and more local supply following the recent harvest. which was in sharp contrast to the growth of 25.9 percent and Also, energy inflation declined due to lower electricity rates 6.8 percent recorded in December 2017 and November 2018, and generation charges, as well as low crude oil prices. Core respectively. The decline in imports was driven by a substantial inflation also declined, dropping to 4.4 percent year-on-year in reduction in imports across all major import commodities, led January 2019, lower than the 4.7 percent in December 2018 by a contraction in capital goods imports (from growing by but higher than 2.6 percent in January 2018. Less pressure on 19.6 percent, year-on-year, in December 2017 to contracting prices gives support to the BSP’s policy of maintaining its by 10.6 percent in December 2018). As a result, the Philippines interest rate target range at 2.0-4.0 percent in 2019-20. posted a US$3.8 billion merchandise trade deficit in December, which was similar to the US$4.0 billion and US$3.9 billion The 2019 national government budget was ratified by deficit recorded in December 2017 and November 2018, Congress on February 8, 2019 and scheduled for the respectively. President’s approval before end-March 2019. The 2019 budget was approved on an obligation-based budget, as Manufacturing activities contracted sharply in December Congress dismissed the implementation of a cash-based following a deceleration in industry growth since May 2018. system. The 2019 budget amounting to Php3.757 trillion, The volume of production index (VoPI) contracted by 10.1 which was prepared under the assumption of a cash-based percent in December, which was more than the contraction of system, is a 13.0 percent increase over its 2018 cash-based 6.1 percent in December 2017 and a sharp reversal from the equivalent (Php3.320 trillion) and similar to the obligation- growth of 1.6 percent in November 2018. Among industries, based total of Php3.767 trillion. Education and public works growth decelerated significantly in the chemical, tobacco, and received the largest share of the budget, consistent with the food manufacturing industries, while it accelerated in the government’s medium-term investment-led agenda. industries for textiles and leather products. The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) Figure 3: Following a deceleration in industry growth since Figure 4: Headline inflation slowed for the third consecutive May 2018, the VoPI contracted in December 2018. month in January 2019. Source: PSA. Source: PSA. PHILIPPINES Monthly Economic Developments | February 2019 Selected Economic and Financial Indicators 2017 2018 Q2 2018 Q3 2018 Q4 2018 Nov-18 Dec-18 Jan-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 2.4 -9.3 Volume of Production Index -0.5 7.2 14.8 5.2 -2.3 1.6 -10.1 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 54.2 53.2 Monetary and Banking sector Headline Consumer Price Index 2.9 5.2 4.8 6.3 5.9 6.0 5.1 4.4 Core Consumer Price Index 2.5 4.1 3.8 4.7 4.9 5.1 4.7 4.4 Domestic liquidity (M3) 13.3 11.6 13.4 10.3 8.7 8.5 9.2 Credit growth 17.8 17.9 17.2 15.5 Business loans 17.4 18.1 17.6 16.1 Consumer loans 20.5 16.5 14.2 11.6 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.2 -0.9 -4.4 -39.1 Total Revenue (% of GDP) 15.7 18.2 16.6 259.7 Tax Revenue (% of GDP) 14.2 16.1 15.2 242.2 Total Expenditure (% of GDP) 17.9 19.2 21.0 298.8 National government debt (% of GDP) 42.1 41.9 42.5 42.3 41.9 7,195 7,293 Stock market PSEi (month-end value) 8,558 7,466 7,194 7,277 7,466 7,368 7,466 8007.48 External accounts Current account balance (% of GDP) -0.7 -3.6 -3.7 Exports of merchandise goods (growth rate) 18.4 -1.3 2.5 -0.3 Imports of merchandise goods (growth rate) 13.6 20.0 19.5 6.8 Net foreign direct investment (in million US$) 10,057 3,528 2,234 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 75,682 79,193 82,132 Import cover 8.4 7.1 7.2 6.8 6.7 6.7 7.0 7.2 Nominal exchange rate 50.40 52.68 52.45 53.54 53.27 52.81 52.77 52.47 Labor Market Unemployment rate 5.7 5.3 5.5 5.4 5.1 Underemployment rate 16.2 16.4 17 17.2 13.3 Sentiments Consumer confidence index (end of period) 9.5 3.8 -7.1 Business confidence index (end of period) 43.3 39.3 30.1 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 | February 2019 Contact Rong Qian (rqian@worldbank.org) for questions.