Philippines Monthly Economic Developments November 2018 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • Philippine economic growth moderated to 6.1 percent year-on-year in the third quarter. • Headline inflation held steady in October while food inflation moderated for the first time since May. • The Philippine peso appreciated 1.2 percent month-on-month in October. • The fiscal deficit widened reaching 3 percent of GDP as rapid expenditure growth outpaced revenue growth. Philippine economic growth moderated to 6.1 percent year- growth in the second quarter of 2018. The industry sector on-year in the third quarter. This was below the 7.2 percent experienced a similar moderation, driven by weaker growth in year-on-year growth rate in the third quarter of 2017, and the the manufacturing sector. Growth of the industry sector upward-revised 6.2 percent growth rate in the second quarter decelerated to 6.2 percent in the third quarter year-on-year of 2018. Capital formation drove third-quarter growth, fueled from 8.1 percent in the same period in 2017. This represents by the robust expansion in durable equipment and a slight moderation compared to the 6.5 percent of the second construction sectors, accelerating to 16.7 percent year-on- quarter of 2018. Lower growth in industry was driven by year from 10.3 percent in the third quarter of 2017. However, third quarter capital formation growth was lower than the 21.5 slower growth in the manufacturing sector, which decelerated percent growth rate in the second quarter. Meanwhile, rising to 4.0 percent in the third quarter from 10.1 percent in the inflation took a toll on private consumption growth which same period in 2017. This continues the downward growth moderated to 5.2 percent in the third quarter from 5.4 percent trend for the manufacturing industry, which registered 5.5 in the third quarter last year. This represents a significant percent growth in the second quarter of 2018. However, the moderation compared to the 5.9 percent recorded in the agriculture sector continued to underperform, highlighting second quarter of 2018. In contrast to the decline in private structural issues and vulnerabilities of the sector. The consumption growth, public consumption grew 14.3 percent agriculture sector contracted by 0.4 percent in the third in the third quarter, accelerating from 8.3 percent in the third quarter year-on-year, a reversal from the 2.6 percent growth quarter of 2017. Net-export, however, remained a drag to in the third quarter of 2017. This growth performance is close economic growth, as import growth outpaced export growth. Import growth was fueled by strong imports of capital goods to the 0.3 percent contraction in the second quarter of 2018. while exports moderated due to weaker external demand. While manufacturing growth slowed in September, it is The services sector drove economic growth while the projected to accelerate in the next few months. The volume agriculture sector underperformed. The services sector of production index (VoPI) expanded by 4.0 percent in year-on- expanded by 6.9 percent year-on-year in the third quarter, year in September, an improvement from the 5.7 percent below the 7.3 percent in the third quarter of 2017, fueled by contraction in September last year but below the 8.8 percent growth in public and financial intermediation services. The in August. Although factory outputs such as textiles, machinery sector’s growth performance was similar to the 6.8 percent (except electrical), and petroleum products accelerated in Figure 1: Economic growth moderated to 6.1 percent year-on- Figure 2: Headline inflation held steady at 6.7 percent in year in the third quarter of 2018. October. Source: Philippine Statistics Authority (PSA) Source: PSA PHILIPPINES Monthly Economic Developments | November 2018 September, tobacco and fabricated metal products exhibited crude oil prices. The year-to-date headline inflation reached weak growth. Nevertheless, the manufacturing sector 5.1 percent in October, significantly higher than the 2.8 growth’s prospects are positive, reflected in the rise of Nikkei percent in the same period of last year. Excluding volatile food Philippines Manufacturing Purchasing Managers’ Index (PMI) and energy items, the core inflation rate rose to 4.9 percent in to 54.0 in October from 52.0 in September. Many surveyed October from 4.7 percent in September and 2.6 percent in firms reported an increased in outputs and an influx of new October 2017. orders, signaling a rise in demand for manufactured goods in The Philippine peso appreciated 1.2 percent month-on- the coming months. month in October from Php/US$54.25 to Php/US$53.61 . A surge in imports and a contraction in exports resulted in the General positive sentiments toward emerging economies and widest merchandise trade gap so far in 2018. Import growth early holiday season inflow of remittances may have accelerated to 26.1 percent year-on-year in September from contributed to the appreciation of the peso. On an annual 4.8 percent in September 2017 and 11.0 percent in August. The basis, however, the peso depreciated 3.4 percent up to end of acceleration was driven by strong growth in all the major October 2018. Moreover, gross international reserves import categories, led by the growth in raw materials and moderated to US$74.8 billion in October from US$80.4 billion intermediate goods, capital goods, and consumer goods in October last year. At its current level, international reserves imports. Meanwhile, merchandise exports contracted by 2.6 cover 6.8 months’ worth of imports, down from 7.9 months’ percent year-on-year in September, a reversal from the 11.6 worth in October last year. percent growth in September 2017 and 3.4 percent growth in The fiscal deficit widened in the first three quarters of 2018, August driven by the reduction in manufactured goods as rapid expenditure growth outpaced revenue growth. exports, which accounted for 86.3 percent of total export. As National government expenditure expanded by 23.6 percent a result, the Philippines’ trade deficit more than doubled year-on-year through the first three quarters of 2018 and reaching US$3.9 billion in September compared to US$1.8 reached 20.0 percent of GDP compared to 17.8 percent over billion in September 2017. the same period in 2017. Meanwhile, national government Headline inflation held steady in October while food inflation revenue grew by 17.2 percent year-on-year and reached 16.9 moderated for the first time since May. The 12-month percent of GDP through the first three quarters. Robust headline inflation rate remained steady at 6.7 percent in revenue growth was fueled by strong growth in tax revenue, October, same as of September but higher than the 3.1 which expanded by 15.7 percent year-on-year in the first three percent in October 2017. Unlike in previous months, food quarters of 2018 compared to 11.3 percent a year ago. As a inflation moderated in October despite a marginal increase in result, the fiscal deficit widened to 3.0 percent of GDP through rice inflation. Energy and transport inflation increased due to the first three quarters of 2018 from 1.9 percent over the same an upward adjustment in the prices of domestic petroleum period in 2017. products, which was mainly influenced by higher international Figure 3: The Philippines registered its widest trade gap in Figure 4: The Philippine peso recovered in October. 2018 amid surging import growth in September. Source: PSA Source: Bangko Sentral ng Pilipinas PHILIPPINES Monthly Economic Developments | November 2018 Selected Economic and Financial Indicators 2016 2017 Q1 2018 Q2 2018 Q3 2018 Aug-18 Sep-18 Oct-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 8.8 3.7 Volume of Production Index 11.5 0.3 18.7 23.0 8.2 8.8 4.0 Capacity Utilization 83.5 83.8 84.2 84.3 84.2 84.3 84.2 Nikkei ASEAN Purchasing Managers' Index 53.2 51.3 53.1 51.6 51.9 52.0 54.0 Monetary and Banking sector Headline Consumer Price Index 1.3 2.9 3.8 4.8 6.3 6.4 6.7 6.7 Core Consumer Price Index 1.5 2.5 3.0 3.8 4.7 4.8 4.7 4.9 Domestic liquidity (M3) 12.5 13.3 13.7 13.4 10.3 10.4 9.7 Credit growth 14.3 17.8 17.2 17.9 14.4 17.4 16.1 Business loans 13.5 17.4 17.0 18.1 14.7 17.9 16.3 Consumer loans 20.5 20.5 19.1 16.5 12.7 13.6 14.4 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.4 -2.2 -3.9 -0.9 -4.4 -2.6 -96.2 Total Revenue (% of GDP) 15.2 15.7 15.8 18.2 16.6 257 202 Tax Revenue (% of GDP) 13.7 14.2 14.3 16.1 15.2 240 183 Total Expenditure (% of GDP) 17.6 17.9 19.7 19.2 21.0 260 299 National government debt (% of GDP) 42.1 42.1 42.6 42.5 42.3 7,103 7,160 Stock market PSEi (month-end value) 6,841 8,558 7,980 7,194 7,856 7,277 7,140 External accounts Current account balance (% of GDP) -0.4 -0.7 -0.2 -3.6 Exports of merchandise goods (growth rate) -2.5 18.4 -5.4 -1.3 3.4 -2.6 Imports of merchandise goods (growth rate) 18.4 13.6 7.2 20.0 11.0 26.1 Net foreign direct investment (in million US$) 8,279 10,057 2,227 3,528 Balance of payment (% of GDP) -0.1 -0.3 -1.6 -2.5 International reserves (in million US$) 83,515 81,273 80,722 78,779 76,531 77,934 74,939 74,772 Import cover 9.7 8.4 7.6 7.2 7.0 7.1 6.8 6.8 Nominal exchange rate 47.49 50.40 51.45 52.45 53.54 53.27 53.94 54.00 Labor Market Unemployment rate 5.5 5.7 5.3 5.5 Underemployment rate 18.4 16.2 18 17 Sentiments Consumer confidence index (end of period) 9.2 9.5 1.7 3.8 Business confidence index (end of period) 39.8 43.3 39.5 39.3 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, PHILIPPINES and Isaku Monthly Endo, under Economic the guidance Developments of Ndiame | November Diop. 2018 Contact Rong Qian (rqian@worldbank.org) for questions.