Economic Briefing for the Philippine Association of National Advertisers. 24 February 2010

Transcription

1 Economic Briefing for the Philippine Association of National Advertisers 24 February

2 Presentation flow 11 themes for Economic growth is real. 2. Service oriented economy. 3. Consumption driven growth. 4. OFW remittances still coming in strong. 5. Manila centric economy but strong growth in the regions. 6. The inflation threat? 7. Alarming fiscal position. 8. Combating corruption is a must. 9. Private sector needed for infrastructure. 10. Upside in the financial markets. 11. Finally Asian decoupling? 2

3 1. Economic growth is real Historical Philippine economic growth % 7.0% 6.0% 5.0% 4.0% GDP Growth GNP Growth 4.4% 4.2% 4.9% 5.9% 6.4% 6.9% 5.0% 5.4% 5.3% 5.4% 7.1% 7.5% 3.7% 6.4% 4.0% 7.3% 7.2% 3.0% 2.3% 2.0% 1.8% 1.0% 1.1% 0.0% Source: NSCB 3

4 1. Economic growth is real Keeping up with our neighbors Average annual GDP Growth China 10.5% India 8.3% Singapore 6.6% Indonesia Philippines Malaysia Hong Kong Thailand Taiwan Korea 5.5% 5.1% 4.9% 4.8% 4.5% 4.4% 3.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Source: CLSA Asia Pacific Markets 4

5 2. Service oriented economy Supply side (as a % of GDP) 5

6 2. Service oriented economy Philippine Service Sector (by sub-sector) Source: NSCB, CLSA Asia Pacific Markets 6

7 2. Service oriented economy Source: Business Process Association of the Philippines & CLSA Source: CLSA 7

8 2. Service oriented economy Key features of Asian economic growth: Rapid output and productivity growth in Agriculture Even higher growth of Manufactured Exports Earlier and steeper declines in fertility Growth in infrastructure supported by high savings rates Human capital development and productivity None of these are true for the Philippines Philippine economy is currently built around its Services sector driven by stable Consumption growth. Agriculture and Export sectors have taken a back seat. Population growth is relatively high at about 2% per year. Very low savings rate of 19% versus an average of 33% in developing Asia. Declining real per capita spending on education and healthcare. Source: World Bank (1993). The East Asian Miracle: Economic Growth and Public Policy (World Bank Policy Research Reports). Oxford University Press Diokno, B. (2008). The Philippines: Fiscal Behavior in Recent History. AC-UPSE Economic Briefing 8

9 3. Consumption driven growth Demand side (as a % of GDP) Private consumption 73.5% 76.8% 79.0% Gov't consumption 7.4% 8.1% 6.8% Investments 15.3% 24.8% 18.5% Net exports 3.8% -12.1% -1.9% Statistical discrepancy 0.0% 2.5% -2.4% TOTAL 100.0% 100.0% 100.0% Source: NSCB 9

10 3. Consumption driven growth Breakdown of Personal Consumption Expenditure 2010 M iscellaneo us, 15.5% Transportation/ Co mmunicatio n, 9.1% Household Operatio ns, 7.8% Food, 54.3% Household Furnishings, 3.0% Fuel, Light, Water, 3.6% Clothing & Footwear, 3.0% Tobacco, 1.7% B everage, 1.9% Source: NSCB 10

11 4. OFW remittances coming in strong OFW remittances (USD Bn) Source: BSP How do Filipino Families use OFW Remittances? Source: Tabuga, A. (Dec 2007). How do Filipino families use the OFW remittances?. PIDS Policy Notes. Makati, Philippines. 11

12 5. Manila centric wealth but strong growth in the regions Regional nominal per capita income 2009 Region Per capita income (PHP) NCR Metro Manila 246,753 X Northern Mindanao 91,453 CAR Cordillera 90,041 XI Davao Region 85,720 VII Central Visayas 75,220 VI Western Visayas 73,077 IVA CALABARZON 68,895 XII SOCCSKSARGEN 64,861 III Central Luzon 57,862 IVB MIMAROPA 55,071 IX Zamboanga Peninsula 54,532 I Ilocos 42,395 II Cagayan Valley 41,992 XIII CARAGA 41,506 VIII Eastern Visayas 39,764 V Bicol 38,022 ARMM ARMM 18,924 Philippine Average 83,261 Comparison of Per Capita Incomes (USD PPP) Based on 2010 IMF data USD per capita PPP parity Singapore 57,238 United States 47,123 Hong Kong 45,277 Australia 39,692 Japan 33,828 So. Korea 29,791 New Zealand 27,460 Saudi Arabia 23,742 Malaysia 14,603 Brazil 11,289 Metro Manila 11,222 Thailand 8,643 China 7,518 Indonesia 4,380 Philippines (Avg) 3,725 India 3,290 Vietnam 3,123 World average 10,725 Authors estimates Source: Data from NSCB 12

13 5. Manila centric wealth but strong growth in the regions Regional Personal Consumption growth 2007/08 & 2008/09 Source: IMF, NSCB 13

14 6. The inflation threat International Food Commodity Price Index World Rice prices (USD/MT) World Corn prices (US cents/pound) World Sugar prices (US cents/pound) International food price inflation is due to: 1. Higher demand 2. Lower yields 3. Weather 4. Crops diverted to biofuels Source: Index Mundi 14

15 6. The inflation threat Weight of food on CPI basket (%) Historical Philippine CPI inflation, World Commodity Food Index Growth and Dubai Crude Price Growth (%) (10.0) (20.0) Phil CPI World Food C ommodity Index (30.0) Dubai Crude Source: CLSA, Index Mundi 15

16 7. Alarming fiscal position Philippine budget deficit as a % of GDP (Jan Nov) 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% 0.3% 0.1% % (Jan- Nov) -1.9% -3.8% -4.0%-4.0% -5.4% -4.6% -3.8% -2.7% -1.0% -0.9% -3.9% -3.2% 2009 Budget deficit was 3.9% of GDP. Primarily due to low tax effort, which is now at under 13% of GDP. Rough estimates show that by raising tax effort to about 17% would wipe out the deficit. This is easier said than done. How to improve tax effort? Medalla and Jandoc (2009) 1. Updating excise taxes (i.e. sin taxes) for inflation 2. Rationalizing fiscal and tax incentives 3. Substituting good indirect taxes (i.e. VAT) for direct taxes 4. Restructuring BIR and BOC Source: Medalla, F. & Jandoc, K. (2009) Reforming the National Tax and Expenditure System. AC-UPSE Economic Briefing Source: DOF 16

17 7. Alarming fiscal position Global Competitiveness Report The most problematic factors for doing business Source: Global Competitiveness Report : World Economic Forum & NEDA 17

18 8. Combating corruption is a must (Taken from De Dios, E. (2010).How do Institutions constrain Philippine growth?. AC UPSE Economic Forum.) Control of corruption index Relative income levels Political stability index Foreign investment flows Source: World Governance Indicators, UNCTAD, Various statistical agencies 18

19 9. Private sector needed for infrastructure Four priority projects for roll-out in H1 2011: Privatization of Laguindingan airport Privatization of MRT 3 NAIA Expressway Phase 2 Privatization of LRT 1 Source: DPWH 19

20 9. Private sector needed for infrastructure Other notable projects NLEX-SLEX link Cavite-Laguna (CALA) Expressway Source: DPWH 20

21 10. Upside from financial markets PSEi and Value traded Jan 2010 to present 21,000 16,000 11,000 6,000 1,000 4-Jan Mar Jun Sep Dec-10 Source: PSE Value traded (PHP Mn) PSEI 4,500 4,000 3,500 3,000 2,500 Recent weakness has been felt around the region due to concern about higher inflation and consequently higher interest rates. Despite this weakness, the Philippines is still supported by healthy macro indicators. Companies have strong earnings growth projected for the year which should justify higher share prices. There has been a lack of visible catalysts to move the market upward. At current prices, the Philippines trades at approximately 12X PE, lower than its long term historical average of 15.5X. 21

22 11. Finally Asian decoupling? (Taken from Fishwick, E. (2011).Asia de-coupled or Asia inflated. CLSA Research Note US Non-financial businesses Liabilities /GDP (%) US Households Liabilities /GDP (%)

23 11. Finally Asian decoupling? (Taken from Fishwick, E. (2011).Asia de-coupled or Asia inflated. CLSA Research Note 23

24 11. Finally Asian decoupling? (Taken from Fishwick, E. (2011).Asia de-coupled or Asia inflated. CLSA Research Note 24

25 11. Finally Asian decoupling? For the Philippines in particular 25

26 What can we expect? Summary of Philippine 2011 forecasts GDP growth Inflation USD-PHP Philippine Government 7% to 8%* 3% to 5%* ** World Bank 5.0% 4.6% ADB 4.6% 4.4% IMF 4.5% 4.0% Analyst consensus 4.9% * Target ** Assumption Source: Analyst consensus from Bloomberg 26

27 Thank you 27