Philippines Monthly Economic Developments March 2020 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a  The Philippine government is taking strong measures to curb the spread of the pandemic COVID-19.  The local stock exchange market index fell to below 5,000 mark in mid-March.  Manufacturing output contracted for the fourteenth consecutive month in January. COVID-19 has been declared global pandemic by WHO and Luzon, global pandemic declaration by WHO, and global oil the Philippine government is taking strong measures to price war, the PSEi dropped sharply to 4,623 on March 19th, flatten the infections curve in the country. The president nearly 30.0 percent lower than the closing of 6,787 in end- declared the Philippines under a state of public health February. Drastic selloffs in the past two weeks triggered emergency on March 9th due to the rising cases of infections in multiple circuit breakers when index dropped by at least 10.0 the country. The entire Luzon, home to over 57 million people percent. Trading operations was also suspended for two days and representing 70 percent of national GDP, was placed on as initial response to the Luzon-wide quarantine. The large enhanced community quarantine from March 16th to April decline mirrored the negative developments in equity markets 13th, which mandated strict social distancing measures across Asia and the United States including a sell-off in the Dow including the suspension of transportation, regulation of the Jones Index. provision for food and essential health services, and the Inflation rate eased further in February. The Consumer Price enhanced presence of uniformed personnel to enforce Index (CPI) inflation slowed to 2.6 percent, year-on-year (yoy), quarantine measures. While these measures might slowdown in February from 2.9 percent in the previous month, within economic growth substantially, it is a proactive and timely the Bangko Sentral ng Pilipinas’ (BSP) 2-4 percent target band. measure to contain or slowdown the local transmission. The Weaker price pressures from food and non-alcoholic authorities are also taking steps to support the people and the beverages mostly contributed to the slowdown. Core inflation, economy including a Php27.1 billion stimulus package to help which excludes volatile commodities like food and energy, also the tourism sector, vulnerable and displaced workers, and slid to 3.2 percent, year-on-year, in February from 3.3 percent SMEs, among others. Several LGUs have also started food in January and from 3.9 percent in February 2019. distribution in quarantined barangays to ensure basis needs are met. The central bank also delivered fresh monetary Manufacturing output contracted for the fourteenth stimulus, slashing the key policy rate by 50 bps on March 19 th. consecutive month in January. The volume of production There are 217 confirmed Covid-19 cases in the country with index (VoPI) contracted by 1.6 percent yoy in January, an the number of death toll recorded at 17 as of March 19 th. improvement compared to the 4.2 percent decline in December 2019 and was the smallest decline since The local stock exchange market index plummeted to below manufacturing output started its contraction in December 5,000 mark in mid-March. With community quarantine in 2018. The disruption to manufacturing activity due to the Taal Figure 1: The Philippine stock exchange suffered drastic selloffs Figure 2: Inflation eased further in February. in mid-March. 12 Core Inflation Headline Inflation 10 Food & Non-alcoholic beverage BSP Key policy rate 8 6 4 2 0 Feb-17 Oct-17 Feb-18 Oct-18 Feb-19 Oct-19 Feb-20 Apr-17 Jun-17 Aug-17 Dec-17 Apr-18 Jun-18 Aug-18 Dec-18 Apr-19 Jun-19 Aug-19 Dec-19 -2 Source: Philippine Stock Exchange Source: Philippine Statistics Authority (PSA) PHILIPPINES Monthly Economic Developments | March 2020 volcano eruption in CALABARZON, a key industrial region, January due mainly to the sustained growth in credit to the contributed to the sector’s continued weak performance, as private sector. Outstanding loans of universal and commercial the tepid performance of the sector was driven by double-digit banks, net of reverse repurchase (RRP) placements with the declines in the manufactures of wood products, petroleum BSP, grew by 11.6 percent in January, faster than the 10.9- products, and basic metals. Meanwhile, leading indicators percent expansion in the previous month. Loans for suggest that the manufacturing sector will continue to improve production activities expanded at 8.8 percent in January, lower in February, as the IHS Markit Philippines Purchasing than the reported growth in December 2019 at 9.1 percent. Managers’ Index increased to 52.3 in February 2020 compared The sustained increase in production loans was driven to 52.1 in January. primarily by lending to the following sectors: real estate activities, financial and insurance activities, and electricity, gas, The sharp increase in public spending in December pushed steam and air conditioning supply. Loans from universal and the fiscal balance beyond its full-year deficit target for 2019. commercial banks for household consumption grew by 40.1 Public spending growth surged in December 2019 to 57.8 percent in January from 27.5 percent in December due to percent yoy in nominal terms, nearly thrice the 22.4 percent faster growth in credit card and motor vehicle loans. growth in November 2019, and a sharp reversal from the 5.1 percent contraction in December 2018. The substantial The year started off with a steady unemployment rate and increase in public spending was driven by robust growth in reduced underemployment. The rate of unemployment infrastructure spending, the implementation of social remained at 5.3 percent in January 2020 relative to January protection programs, and increases in personnel services 2019 and the number of employed individuals edged up to expenditures. Meanwhile, public revenues growth fell to its 42.7 million from 41.0 million in January 2019. The labor slowest pace since June 2019, increasing by 4.8 percent year- market generated additional 1.6 million net jobs with the on-year in nominal terms in December 2019 as growth in tax services sector the largest contributor to net job creation with collections moderated to 4.6 percent, its slowest pace since almost 1 million jobs, followed by the agriculture sector with April 2019 (2.8 percent). As a result, the government’s fiscal 0.8 million jobs. Meanwhile, the industry sector lost almost 0.2 deficit tripled to Php251 billion in December 2019, pushing the million jobs, half of which in construction, due to lesser government beyond its full year fiscal deficit target by Php40.2 construction activities as indicated by fewer approved building billion in 2019. permits in Q3 2019. Nevertheless, labor force rose leading to increase in the number of jobless persons from 2.3 million in Domestic liquidity expansion accelerated, and bank lending January 2019 to 2.4 million in January 2020. Meanwhile, there growth quickened in January. Domestic liquidity (M3) grew by were fewer employed individuals looking for additional jobs as 11.9 percent yoy to about Php12.8 trillion in January, faster underemployment rate declined from 15.4 percent to 14.8 than the 11.3-percent expansion (revised) in December 2019. percent. Demand for credit remained the principal driver of money supply growth. Domestic claims grew by 11.7 percent in Figure 3: The government breached its full-year deficit target in Figure 4: The unemployment and underemployment rates 2019. rose in January. 350 25 300 250 20 200 150 In Billion Pesos 15 100 Percent 50 10 0 -50 July Jan July Jan July -100 5 -150 2018 2019 -200 0 -250 -300 Net Foreign Financing Net Domestic Financing Budget Surplus/Deficit Unemployment rate Underemployment rate Source: Bureau of the Treasury Source: PSA PHILIPPINES Monthly Economic Developments | March 2020 Developments to Watch  COVID-19 outbreak: when will the outbreak stabilize?  Manufacturing: how much the covid outbreak will prolong the slump in manufacturing activities?  Domestic consumption: how much will covid outbreak impact domestic consumption growth? Selected Economic and Financial Indicators 2018 2019 Q2 2019 Q3 2019 Q4 2019 Dec-19 Jan-20 Feb-20 Real GDP growth, at constant market prices 6.2 5.9 5.5 6.0 6.4 Private consumption 5.6 5.8 5.5 5.9 5.6 Government consumption 12.8 10.5 7.3 9.6 18.7 Capital formation 13.7 -0.6 -8.5 -2.6 0.4 Exports, goods and services 11.5 3.2 4.8 0.7 2.0 Imports, goods and services 14.5 2.1 -0.1 -0.2 0.3 Industry Performance Value of Production Index 8.3 -7.0 -8.8 -8.4 -7.3 -8.7 -6.3 Volume of Production Index 7.6 -8.4 -10.2 -9.0 -7.1 -9.1 -1.6 Capacity Utilization 84.2 84.4 84.3 84.3 84.5 84.4 84.4 Nikkei Philippines Purchasing Managers' Index 52.5 51.8 51.2 51.8 51.8 51.4 51.7 52.1 Monetary and Banking sector Headline Consumer Price Index 5.2 2.5 3.0 1.7 1.5 2.5 2.9 2.6 Core Consumer Price Index 4.1 3.3 3.4 2.9 2.8 3.1 3.3 3.2 Domestic liquidity (M3) 11.6 7.6 6.7 7.0 9.8 11.3 11.9 Credit growth (universal and commercial banks) 18.3 11.5 11.5 10.5 9.8 10.6 11.4 Business loans 18.4 10.7 11.2 9.3 8.2 9.1 8.8 Consumer loans 17.3 20.3 15.0 24.8 26.9 27.5 40.1 Fiscal sector In billions Php Fiscal balance (% of GDP) -3.2 -3.5 1.0 -5.7 -6.8 -251.1 Total Revenue (% of GDP) 16.4 16.9 18.6 17.4 15.3 243.3 Tax Revenue (% of GDP) 14.7 15.2 16.5 15.8 14.0 215.5 Total Expenditure (% of GDP) 19.6 20.4 17.6 23.0 22.2 494.4 National government debt (% of GDP) 41.9 41.5 43.7 42.6 41.5 7,731 7,763 Stock market PSEi (month-end value) 7,466 7,815 8,000 7,819 7,815 7,815 7,201 6,788 External accounts Current account balance (% of GDP) -2.4 0.0 0.8 Exports of merchandise goods (growth rate) 0.8 1.6 1.8 1.0 7.1 21.4 9.7 Imports of merchandise goods (growth rate) 18.2 -4.7 -2.9 -4.5 -3.1 -7.6 1.0 Net foreign direct investment (in million US$) 9,832 1,653 1,533 Balance of payment (% of GDP) -0.7 1.1 0.9 International reserves (in million US$) 79,193 87,839 84,932 85,581 87,840 87,839 86,869 Import cover 6.9 7.7 7.4 7.5 7.7 7.7 7.6 Nominal exchange rate 52.7 51.8 52.1 51.7 51.0 50.8 50.8 50.8 Labor Market Unemployment rate 5.3 5.1 5.1 5.4 4.5 5.3 Underemployment rate 16.4 14.0 13.5 13.9 13.0 14.8 Sentiments Consumer confidence index (end of period) -22.5 1.3 -1.3 4.6 1.3 Business confidence index (end of period) 27.2 40.2 40.5 37.3 40.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, Ray Gomez, Jiyoung Song and Isaku Endo, PHILIPPINES Monthly Economic Developments | March 2020 under the guidance of Ndiame Diop. Contact Rong Qian (rqian@worldbank.org) for questions.