The Philippines and Asia 2012 Economy: What s going on?

Transcription

1 The Philippines and Asia 2012 Economy: What s going on? Core Logistics Conference /F, Function Room, Board Room 3 New World Hotel, Makati City National Economic and Development Authority 1

2 Outline of the Presentation I. Recent Philippine Economic Performance A. Real Sector B. Monetary and External Sector C. Fiscal Sector II. Macroeconomic Outlook A. Growth Assumptions B. Global and Domestic Risks to Growth C. Near-term Policy Directions National Economic and Development Authority 2

3 I. THE PHILIPPINE ECONOMIC PERFORMANCE National Economic and Development Authority 3

4 The economy grew at a moderate pace in 2011 (growth rate, in %, at constant prices) Indicator GNI (%) GDP (%) Net Primary Income (%) 10.0 (0.9) Source: NSCB National Economic and Development Authority 4

5 Reasons for low growth in 2011 External 1 Government 23 Base 4 Typhoons Shocks MENA, high oil prices, Japan and Thailand disasters, Euro debt and economic woes, weak US economy, worldwide economic slowdown underspending, especially contraction in public construction amid process improvements and project reviews and good governance reforms effects from election spending and rapid recovery in 2010 and weather-related disturbances. National Economic and Development Authority 5 5

6 Major sectors affected by external shocks... FY Indicator GDP (%) Agriculture (0.2) 2.6 Industry Manufacturing Services Household Consumption Gov t Expenditure 4.0 (0.7) Capital Formation Public Construction 4.1 (29.4) Private Construction Exports 21.0 (3.8) Imports National Economic and Development Authority 6 6

7 Major sectors affected by government underspending... FY Indicator GDP (%) Agriculture (0.2) 2.6 Industry Manufacturing Services Household Consumption Gov t Expenditure 4.0 (0.7) Capital Formation Public Construction 4.1 (29.4) Private Construction Exports 21.0 (3.8) Imports National Economic and Development Authority 7 7

8 Construction sector contracted amid process improvements and project reviews... Indicator FY Construction 17.5 (4.1) Public 4.1 (29.4) Private Source: NSCB National Economic and Development Authority 8 8

9 Contribution to Real GDP Growth 2011 By Expenditure Percentage Points Contribution to Real GDP Growth By Industrial Origin Percentage Points Contribution to Real GDP Growth Major Contributors Household Consump. 4.2 Capital Formation 2.3 Durable Equipt. 0.9 Private Cons. 0.4 Least Contributors Exports of goods (2.2) Public Construction (0.7) Gov't Consumption (0.1) Source: NSCB Major Contributors Manufacturing 1.0 R.Estate/Renting/Bus.Acts 0.8 Other Services 0.7 Financial Intermediation 0.4 Trade 0.4 Least Contributors Construction (0.4) Utilities (0.1) Forestry (0.1) National Economic and Development Authority 9

10 Labor Market ITEMS 2010 FY 2011 FY Working Age Pop ulation ('000) 60,717 61,882 Labor Force Level ( '000) 38,893 40,005 (growth rate, %) Not in the La bor forc e 21,823 21,878 LFPR( %) La b or Entra nts ('000) 1,002 1,112 (growth rate, %) (7.7) 10.9 Emp loym ent Level ('000) 36,035 37,192 (growth rate, %) Emp loyment Ra te (in %) Employment by No. of Hours Worked ('000) Less than 40 hrs. a week 12,654 13,448 (growth rate, %) (2.3) Hrs. and Above 22,906 23,257 (growth rate, %) Emp loyment by Class of Workers ('000) Wage and Salary Workers 19,627 20,537 (growth rate, %) Self-employed w/o any paid employee 10,858 10,994 (growth rate, %) Emp loyer in own-family operated farm/b 1,394 1,355 (growth rate, %) (3.1) (2.8) Unpaid family Workers 4,157 4,305 (growth rate, %) (1.5) 3.6 Emp loyment Generated ('000) 974 1,157 (growth rate, %) Ag ric ulture (87) 310 (growth rate, %) (754.7) Ind ustry (growth rate, %) (56.8) Ma nufa c turing (growth rate, %) (64.9) Se rvic es (growth rate, %) (17.4) (5.3) Unemployment Level ('000) 2,859 2,814 Unemployment Rate (%) Und erem p lo ym ent Level ('000) 6,762 7,164 Underemployment Rate (%) The labor market performed better in 2011 as the country generated more employment compared a year ago. Employment level rose by million, largely on the strength of the continued growth in services and the recovery in agriculture albeit the slowdown in industry. DOLE-BLES, Labstat, Vol. 16 No. 1 National Economic and Development Authority 10

11 Philippine inflation still within target Source: National Statistics Office Note: 2012 inflation data reflects January 2012 only National Economic and Development Authority 11

12 Philippine Peso remains stable Feb 2012: US$1 = Php Volatility: 0.014% Jan Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Aug Sep Sep Oct Oct Nov Nov Dec Dec Jan Jan Jan Feb-12 volatility (rhs) Peso/US$ (lhs) Source: Bangko Sentral ng Pilipinas National Economic and Development Authority 12

13 Mixed developments in trade and remittances Merchandise Exports and Imports OF Remittances Dec % Nov % Merchandise Exports (y-o-y growth) Merchandise Imports (y-o-y growth) Source: National Statistics Office US$ billion (lhs) growth rate (rhs) Source: Bangko Sentral ng Pilipinas National Economic and Development Authority 13

14 Net inflows of foreign investments continue 3,000 2,500 2,000 1,500 1, Net FDI, US$ million Jan-Nov 2011 US$782mn 1,800 1,600 1,400 1,200 1, BSP Registered Net FPI, US$ million Jan 2012 US$ mn Source: Bangko Sentral ng Pilipinas National Economic and Development Authority 14

15 Build-up of foreign reserves continues GIR(lhs, US$ bn) months worth of imports (rhs) Short-Term External Debt Cover** (rhs) $77.0 bn * *As of January 2012 Source: Bangko Sentral ng Pilipinas; *As of end **based on residual maturity National Economic and Development Authority 15

16 Fiscal deficit within program as of November 2011 NG CASH OPERATIONS REPORT Jan Nov % Change Program* (y-o-y) 2011 REVENUES 1, , ,357.3 Tax Revenues , ,225.1 BIR BoC Other Offices Non-Tax Revenues EXPENDITURES 1, , ,617.9 SURPLUS/(DEFICIT) NET FINANCING Net external borrowings Net domestic borrowings Change in cash * Revised with Disbursement Acceleration Program (October 2011 DBCC) National Economic and Development Authority 16

17 II. OUTLOOK National Economic and Development Authority 17

18 FY 2012 Growth Outlook (Supply Side) (growth rate, in %, at constant prices) Actual 2012 Assumption* Low High Agriculture (0.2) Industry Services GDP GNI *DBCC approved only the GDP growth rate. Assumption details may still change. National Economic and Development Authority 18

19 FY 2012 Growth Outlook (Demand Side) (growth rate, in %, at constant prices) Actual 2012 Assumption* Low High HH Cons Govt. Cons. 4.0 (0.7) Investment Total Exports Total Imports *DBCC approved only the GDP growth rate. Assumption details may still change. National Economic and Development Authority 19

20 Growth Assumptions: Government Expenditure: More efficient and faster process due to the implementation of bureaucratic reforms in budget management and administration initiated in Accelerated budget execution process PerDBM,99.6% ofthebudgetforpsand90.4% formooehave alreadybeenreleased 1/ 1/ as of January 17, 2012 National Economic and Development Authority 20

21 Reform-Minded Administration with Focus on Good Governance Good governance agenda with emphasis on fiscal discipline, transparency and accountability Key Reforms Instituted by the Administration Prudent fiscal controls coupled with intensified revenue collection efforts over the past year have laid the framework for efficient budgetary allocation in 2012 Tax reform measures including the proposed hike in the Sin tax (alcohol and tobacco product taxes) and the rationalization of fiscal incentives aim to further improve the fiscal position Tighter prioritization of expenditures through the Zero Based Budgeting approach, improved composition of expenditures and quality of government services Rigorous implementation of RATE, RATS, RIPS programs to go after evaders, smugglers, corrupt officials, respectively, have improved tax collection Contracts and public tenders are now posted on public websites to instill transparency in the procurement process Set-up BIR key performance indicators and publish actual results; establish appropriate performance standards and evaluations Enacted the GOCC Governance Act of 2011 which lays the groundwork for enhanced discipline in GOCCs Set up the Debt Management Office at the Department of Finance which is tasked to formulate and oversee the implementation of the Republic s debt management strategy Fiscal Discipline Transparency and Accountability Source: BSP-IRO National Economic and Development Authority 21

22 Focus on Good Governance Yielding Results ROP is showing improvement on several governance and competitiveness indicators 2009/ /2011* Change World Bank Government Effectiveness Indicator percentile Transparency International Corruption Perceptions Index places World Economic Forum ( WEF ) Competitiveness Rankings Overall places Institutions places Macro environment places Higher Education and Training places Goods and Market Efficiency places Technological Readiness places Financial Market Development places Business Sophistication places Innovation places Source: BSP-IRO based on World Bank, Transparency International and WEF *World Bank Governance Indicators and Transparency International values are for the year 2010 / World Economic Forum Rankings values are from the 2011/2012 report data National Economic and Development Authority 22

23 Progress Has Been Recognized by the Rating Agencies ROP credit ratings are in rising trajectory The national government recorded a small fiscal surplus, building upon the notable turnaround in fiscal management seen during 2H Much of the improvement has been attributed to the progress made in fiscal consolidation by the new Aquino administration The strength of the Philippines external balance sheet and favorable growth trajectory support the sovereign credit ratings on the country. Structural strengths of the current account appear sufficiently well entrenched The upgrade in June reflects progress on fiscal consolidation against a track record of macro stability, broadly favourable economic prospects and strengthening external finances Baa 3 Ba1 Ba2 Moody's Last upgraded to Ba2 (June 15, 2011) BBB - BB+ BB S&P Last upgraded to BB (November 12, 2010) BBB - BB+ BB Fitch Last upgraded to BB+ (June 23, 2011) Ba3 B1 B+ S&P: Positive Outlook (December 16, 2011) BB- BB- B+ B B B B- B- B Source: Moody s, S&P, Fitch taken from IRO presentation National Economic and Development Authority 23

24 The Markets Recognize ROP s Strength The market s verdict is clear: the Republic s ratings should be higher Philippines CDS implied-ratings of the ROP continue to climb and is now at Baa2 according to Moody s, BBB+ according to S&P and BBB according to Fitch The bond implied-rating of the Philippines as calculated by Moody s is Baa1, a staggering 4 notches difference from the actual Ba2 rating This gap between bond-implied and actual rating is the largest in the world according to the data provided by Moody s The message from the markets is clear: the Philippines is the most underrated country in the world The Republic s risk perception outperforms higher rated peers Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Indonesia 5 year CDS Level Philippines 5 year CDS Level According to Moody s bond implied-ratings, the Philippines is the most underrated country in the world Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 Baa1 Ba2 Baa1 Baa3 Baa1 Baa1 Baa2 Philippines Colombia Panama Peru Indonesia Costa Rica Mexico Malaysia Korea Thailand Baa2 Under-rated Baa1 Over-rated A3 Baa3 Baa3 Baa3 Baa3 Baa3 Baa1 Baa1 A1 A3 Baa1 Actual Rating Bond Implied-Rating National Economic and Development Authority 24 Sources: Moody s Market Signals Sovereign Risk Report, GS Research taken from IRO presentation

25 Growth Assumptions: (cont d) Investments: Early release of funds for infrastructure projects 72.1% or PhP150.2 billion allocation for capital outlays has already been released to agencies like DPWH, DA, DepEd Sixteen(16) projects under PPP are already in the pipeline Estimated to cost PhP billion National Economic and Development Authority 25

26 PPP Projects as of February 2012 Project Title 1. PPP for School Infrastructure Project 2. Vaccine Self-Sufficiency Project Phase II 3. LRT Line 2 East Extension and O&M Privatization 4. NLEX-SLEX Connector Road 5. O&M of Puerto Princesa Airport Development Project 6. Grains Central Project 7. O&M of Laguindingan Airport Development Project 8. Modernization of the Philippine Orthopedic Center Source: PPP Center National Economic and Development Authority 26

27 PPP Projects as of February 2012 Project Title 9. New Bohol (Panglao) Airport Development Project 10. Mactan-Cebu International Aiport Passenger Terminal Building 11. CALA Expressway (Cavite and Laguna Side) 12. Common Automatic Fare Collection System 13. New Water Supply Source Project 14. O&M of AHEPP Auxilliary Turbines 4&5 15. Balara Water Hub 16. Establishment of Cold Chain Systems Covering Strategic Areas in the Philippines Source: PPP Center National Economic and Development Authority 27

28 Global and Domestic Risks to Growth External Risks obalance sheet issues and weak consumption in the US ofiscal problems and sluggish output in the Eurozone Internal Risks oweak industry output odamages in agriculture and infrastructure due to natural calamities otimely and effective implementation of Disbursements Acceleration Program National Economic and Development Authority 28

29 Year over Year Difference fromseptember 2011 WEO Projections Projections ITEMS World Output Advanced Economies United States Euro Area Japan United Kingdom Canada Other Advanced Economies Emerging and Developing Economies Central and Eastern Europe Commonwealth of Independent States Developing Asia China India ASEAN Latin America and the Caribbean Middle East and North Africa (MENA) Sub-Saharan Africa Memorandum European Union World Growth Based on Market Exchange Rates World Trade Volume (goods and services) Imports Advanced Economies Emerging and Developing Economies Exports Advanced Economies Emerging and Developing Economies Commodity Prices (U.S. dollars) Oil Nonfuel (average based on world commodity export weights) Consumer Prices Advanced Economies Emerging and Developing Economies London Interbank Offered Rate (percent) 7 Growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand. On U.S. Dollar Deposits On Euro Deposits On Japanese Yen Deposits Source: IMF WEO, Jan 2012 National Economic and Development Authority 29

30 Asia is still on the grip despite the sluggish global demand Deceleration of growth for Asia is due to the weak external demand Financial contagion from Europe remains to be of concern for Asia Potential strong policy response are available in the event of further slowdown National Economic and Development Authority 30

31 Near-term Policy Directions Stimulating domestic demand o Sustaining domestic consumption o Securing investments Accelerating fiscal spending and infrastructure outlays Diversifying domestic and external trade Strengthening economic relations with fast-growing ASEAN economies; seizing the opportunity from China rebalancing National Economic and Development Authority 31

32 A Promising Future Lies Ahead The Philippines is the last major economy in Asia to enter its demographic sweet spot The youngest population in Asia supports a strong medium-term economic growth outlook The median age in the Philippines is only 22.2 years, well below other young countries in Asia, such as Malaysia (25), India (25.1), Indonesia (27.8) and Vietnam (28.2) According to United Nations population projections, the Philippines will enter its Demographic Window in 2015, when the proportion of the population that is of working age is particularly prominent The Philippines is the last major Asian economy to benefit from this demographic dividend, which is typically associated with accelerated economic growth Extended periods of high GDP growth in Asia s fastest-growing economies have coincided with countries entering their Demographic Windows* On average, growth over the 10-year period following the beginning of the Demographic Window has been 7.3% Demographic Windows* in Asia Average GDP Growth, First 10 Years of Demographic Window (%) Japan Hong Kong Singapore Korea China Thailand Indonesia Vietnam Malaysia India Philippines China Korea India Japan Singapore Hong Kong Vietnam Indonesia Malaysia Thailand** *Defined as the period when population under 15 years old drops below 30% and population over 65 years old is less than 15%. National Economic and Development Authority 32 Sources: BSP IRO based on the UN World Population to 2030, UN World Population Prospects (2010 Revision), IMF World Economic Outlook, Japan Cabinet Office **Thailand is an exception, as its Demographic Window began in 1995, and thus its high-growth period was interrupted by the Asia Financial Crisis of

33 The Philippines and Asia 2012 Economy: What s going on? Core Logistics Conference /F, Function Room, Board Room 3 New World Hotel, Makati City National Economic and Development Authority 33