Philippines Monthly Economic Developments January 2019 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • Headline inflation dropped further in December. • Manufacturing activities expanded at a slower pace in November. • Government expenditure growth decelerated in November but remained high, driven by infrastructure and personal spending. The headline inflation rate dropped to 5.1 percent in registered in 2017. In line with other countries in the region, December, putting the full-year inflation rate above the the PSEi displayed a strong momentum in early 2018 (it central bank’s target range. The Consumer Price Index (CPI) exceeded 9,000 in January), then fell sharply due to a slowed from 6.0 percent in November to 5.1 percent in combination of domestic (e.g. rising inflation) and external December, year-on-year. The main contributors to the lower headwinds (e.g. trade tensions, US Fed monetary tightening) inflation rate in December were lower food and transport that resulted in significant net foreign selling throughout the prices as a result of the fall in international oil prices, the year. Total net foreign selling reached Php57.1 billion in 2018, provisional rollback of jeepney fares in select areas, and the compared to net foreign buying of Php54.8 billion in 2017, large rice supply during the ongoing harvest season. reflecting an overall risk aversion to emerging market Nevertheless, the full-year average inflation rate increased economies. from 2.9 percent in 2017 to 5.2 percent in 2018–above the The Philippine peso depreciated in December. The peso central bank’s 2-4 percent target range. Excluding volatile food depreciated 0.2 percent, month-on-month, in December, a and energy items, the core inflation rate also decreased from reversal from the 1.9 percent appreciation in November. 5.1 percent in November, year-on-year, to 4.7 percent in Moreover, the peso depreciated 5.3 percent, yoy, in December. The full-year average core inflation rate reached December, up from 4.3 percent depreciation in December 4.1 percent in 2018, up from 2.5 percent in 2017. On 2017. Higher international oil prices, coupled with the U.S. November 16, the central bank raised its key policy rate by 25 Federal Reserve’s unexpected aggressive policy stance, put basis points to 4.75 percent, resulting in a total increase of 175 downward pressure on the peso, outweighing the effects of an basis points in 2018. expected influx of remittances during the holiday season. In The Philippine Stock Exchange index (PSEi) continued its addition to global economic headwinds, a wider trade deficit modest recovery in December for the second consecutive and high average inflation contributed to the large year-on- month. The PSEi rose by 1.3 percent, month-on-month, in year currency depreciation in December. December, following a 3.2 percent expansion in November, to close the year at 7,466. However, the index fell by an average 12.8 percent in 2018—a reversal from the 25.1 percent gain Figure 1: Inflation fell for the second consecutive month in Figure 2: The PSEi slightly recovered in November after a December 2018. significant decline amid domestic and external economic headwinds. Source: Philippine Statistics Authority. Source: Philippine Stock Exchange. PHILIPPINES Monthly Economic Developments | January 2019 Merchandise exports contracted for the first time in six decline in the growth of manufacturing activities. Factory months in November while import growth slowed activities in textiles, miscellaneous manufactures, and significantly to single digits. Merchandise exports fell by 0.3 petroleum products expanded by double digits, while activities percent, year-on-year, in November—a sharp reversal from in food manufacturing and machinery (except electrical) 5.5 percent growth registered in October. The contraction in contracted. Meanwhile, the Nikkei Philippines Manufacturing merchandise exports was driven by the decline in electronics Purchasing Managers’ Index fell slightly from 54.2 in exports, the country’s primary export commodity, which November to 53.2 in December, as business conditions were contracted by 1.6 percent in November, from 0.6 percent supported by the expansion in new orders and the growth in growth in October. Meanwhile, import growth decelerated purchasing activities. from 21.4 percent in October to 6.8 percent in November. The Government expenditure growth decelerated in November slowdown in import growth was driven by the contraction in but remained high, driven by infrastructure and personal consumer goods imports (7.5 percent in October to -3.8 spending. Public expenditure growth decelerated from 35.2 percent in November) and a deceleration in the growth of percent in October to 18.5 percent in November. The still high imports of capital goods (from 21.2 percent in October to 4.9 expenditure growth was driven by infrastructure and other percent in November) and raw materials and intermediate capital outlays, which expanded by 43.6 percent in November, goods (from 22.2 in October to 6.7 percent in November). As a and personnel services, which grew by 25.3 percent in the result, the Philippines posted a US$3.9 billion merchandise same month. Meanwhile, national government revenue trade deficit in November, against US$4.1 billion deficit in growth decelerated from 20.3 percent in October to 6.7 October. percent in November. The slowdown was due to moderate Gross international reserves recovered month-on-month in growth in tax revenue collection. As a result, the government December but remain lower than the level reached in posted a fiscal deficit of Php39.1 billion in November, resulting December 2017. Gross international reserves fell from in a total fiscal deficit of Php477.2 billion at the end of US$81.6 billion in December 2017 to US$75.7 billion in November, or 91.0 percent of the programmed deficit of November 2018, before increasing to US$78.5 billion in Php523.7 billion in 2018. December. The country’s current level of reserves can cover 6.9 months’ worth of imports of goods and payment of services and primary income, down from 7.7 months’ worth in December 2017. Manufacturing activities expanded at a slower pace in November. The volume of production index (VoPI) expanded by 1.0 percent in November, down from 3.9 percent in October. This marked the seventh month of consecutive Figure 3: The Philippine peso depreciated in December 2018. Figure 4: The public deficit widened for the seventh straight month in November 2018, as spending outpaced revenue. .collection in November. Source: Bangko Sentral ng Pilipinas. Source: Bureau of the Treasury. PHILIPPINES Monthly Economic Developments | January 2019 Selected Economic and Financial Indicators 2016 2017 Q1 2018 Q2 2018 Q3 2018 Oct-18 Nov-18 Dec-18 Real GDP growth, at constant market prices 6.9 6.7 6.6 6.2 6.1 Private consumption 7.2 5.9 5.7 5.9 5.2 Government consumption 8.8 7.1 13.6 11.9 14.3 Gross fixed capital investment 26.6 9.5 8.8 21.2 16.5 Exports, goods and services 11.7 19.6 6.5 12.6 14.3 Imports, goods and services 20.5 18.2 9.6 18.5 18.9 Industry Performance Value of Production Index 6.2 -0.7 17.8 24.0 8.2 3.1 2.1 Volume of Production Index 11.5 0.3 18.7 23.0 8.2 3.9 1.0 Capacity Utilization 83.5 83.8 84.2 84.3 84.2 84.3 84.3 Nikkei ASEAN Purchasing Managers' Index 53.2 51.3 53.1 51.6 54.0 54.2 53.2 Monetary and Banking sector Headline Consumer Price Index 1.3 2.9 3.8 4.8 6.3 6.7 6.0 5.1 Core Consumer Price Index 1.5 2.5 3.0 3.8 4.7 4.9 5.1 4.7 Domestic liquidity (M3) 12.5 13.3 13.7 13.4 10.3 8.3 8.4 Credit growth 16.6 17.8 17.2 17.9 16.7 16.8 Business loans 13.5 17.4 17.0 18.1 17.2 17.4 Consumer loans 20.5 20.5 19.1 16.5 13.3 12.0 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.4 -2.2 -3.9 -0.9 -4.4 -59.9 -39.1 Total Revenue (% of GDP) 15.2 15.7 15.8 18.2 16.6 246.8 259.7 Tax Revenue (% of GDP) 13.7 14.2 14.3 16.1 15.2 222.2 242.2 Total Expenditure (% of GDP) 17.6 17.9 19.7 19.2 21.0 306.6 298.8 National government debt (% of GDP) 42.1 42.1 42.6 42.5 42.3 7,167 7,195 Stock market PSEi (month-end value) 6,841 8,558 7,980 7,194 7,277 7,140 7,368 7,466 External accounts Current account balance (% of GDP) -0.4 -0.7 -0.2 -3.6 -3.7 Exports of merchandise goods (growth rate) -2.5 18.4 -5.4 -1.3 2.5 5.5 -0.3 Imports of merchandise goods (growth rate) 18.4 13.6 7.2 20.0 19.5 21.4 6.8 Net foreign direct investment (in million US$) 8,279 10,057 2,227 3,528 2,234 491 Balance of payment (% of GDP) -0.1 -0.3 -1.6 -2.5 -2.4 International reserves (in million US$) 83,515 81,273 80,722 78,779 76,531 74,772 78,461 Import cover 9.7 8.4 7.6 7.2 7.0 6.8 6.9 Nominal exchange rate 47.49 50.40 51.45 52.45 53.54 54.00 52.81 52.77 Labor Market Unemployment rate 5.5 5.7 5.3 5.5 5.4 5.1 Underemployment rate 18.4 16.2 18 17 17.2 13.3 Sentiments Consumer confidence index (end of period) 9.2 9.5 1.7 3.8 -7.1 -22.5 Business confidence index (end of period) 39.8 43.3 39.5 39.3 30.1 27.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro and Isaku Endo, under the guidance of Ndiame Diop. PHILIPPINES Monthly Economic Developments | January 2019 Contact Rong Qian (rqian@worldbank.org) for questions.