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Sustaining Resilience, Expanding Opportunities for Inclusive Growth Deputy Governor Diwa C. Guinigundo Bangko Sentral ng Pilipinas Source: Google images 2
PH emerges as growth leader in the ASEAN pack The Philippines is expected to remain one of the fastestgrowing economies in Asia 7.5 7.3 6.7 6.9 6.7 6.7 6.8 6.7 6.6 6.6 6.4 6.5 5.9 5.5 5.3 5.3 5. 5.1 3.7 3.9 3.9 3.9 3.93.8 3.6 2.9 2.7 World Output India Philippines China Vietnam Malaysia Indonesia Thailand Singapore 217 218F 219F Source: Forecasts are from IMF-WEO July 218 for World, China, and India and from IMF-WEO April 218 for Malaysia and Indonesia; latest Article IV reports for Thailand, Philippines, Singapore and Vietnam; Actual values are based on country statistics offices/ bureaus 3
PH emerges as growth leader in the ASEAN pack China 6.8% In S1 218, PH Among the Fastest Growing Economies in Asia India 8.% Thailand 4.8% Malaysia 4.9% Singapore 4.2% Vietnam 7.1% Indonesia 5.2% Philippines 6.3% 4
198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 PH Economic Growth in Sharp Upward Trajectory Gross Domestic Product (GDP) Growth Rates at Constant 2 Prices (%) % 8 6 4 2.% 198-1989 2.8% 199-1999 4.5% 2-29 6.4% 21-217 6.3% S1 218 2 6.7% -2-4 FY 217-6 -8 Source: Philippine Statistics Authority (PSA) 5
Rising Contribution from Investments and Industry Demand Side Supply Side Ave. growth 6.4% 6.3% 1.4 Ave. growth 6.4% 6.3%.7 4.5% 2.8%.3.4 2.5 -.3 4.5%.2.3.7 3.3 3. 4. -1.3 199-1999 2-29 21-217 4.6 3.8-3.9 2.8% 2.8 3.8 1.8 2.4 1.2.7.2.4.1 199-1999 2-29 21-217 3.8 2.4.1 SEM 1 218 Net Exports Government Investment Household Consumption SEM 1 218 Agriculture Industry Services Source: PSA 6
28 29 21 211 212 213 214 215 216 217 Jan 18 Feb 18 18-Mar Apr-18 May-18 Jun-18 Jul-18 Aug-18 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Manageable inflation environment supportive of growth Recent inflation outturns driven by supply-side factors Inflation momentum picks up in August 218 9. 8. 7. 6. 5. 4. 3. 2. 1.. 8.3 Headline inflation (%), 212=1 Headline Inflation Target Headline Inflation (212) 6.4 5.7 5.2 4.7 4.2 3.8 3.2 3.6 2.6 2.9 3.4 3.8 4.3 4.5 4.6.7 1.3 Seasonally-Adjusted Headline Inflation (%), 212=1 1..9.8.7.6.5.4.3.2.1. -.1 BSP month-on-month (LHS) PSA month-on-month (LHS) Growth and inflation forecasts 217 218 218 219 ROP Official Targets Real GDP, % (April 218) 7.-8. 7.-8. Inflation, % 2.-4. 2.-4. BSP Forecast, % (212-based)* 4.9 3.7 IMF (July 218) Real GDP, % 6.7 6.7 Inflation, % (26-based) 4.7 3.8 ADB (July 218) Real GDP, % 6.8 6.9 Inflation, % (26-based) 4.3 3.9 *9 August 218 MB meeting Sources: BSP, PSA, IMF, and ADB 7
Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Strong anchoring of interest rates Key domestic market rates (%) 4.5 4 3.5 3 2.5 2 1.5 1.5 Overnight (O/N) RRP rate 7-day TDF WAIR 14-day TDF WAIR 28-day TDF WAIR 91-day Tbill ave. yield IBCL Rate O/N Lending Facility rate O/N Deposit Facility rate 8
Manageable external payments position shields economy from external headwinds 25 26 27 28 29 21 211 212 213 214 215 216 217 H1 217 H1 218 Current account developments reflective of growing economy economic expansion (USD bn) 2 15 1 5-5 -1 in USD bn 12 1 8 6 4 2 Source: BSP, PSA Capital and Financial Account Current Account Balance of Payments 9.2 7.2 Rising imports necessary to support economic expansion 2.2 Drivers of goods imports growth (percentage points) -24.1 27.5 1.1 2.7.5 4.8 8.7 18.3 14.2 13.2 26 27 28 29 21 211 212 213 214 215 216 217 H1 218 Capital Goods Mineral Fuels and Lubricant Mat/Acc. for Manufacture of Elec. Eqpt. Other Raw Materials/Intermediate Goods Consumer Goods Other Imports Total Imports Growth (in %, RHS) in % 4 3 2 1-1 -2-3 9
25 26 27 28 29 21 211 212 213 214 215 216 217 end-jun '18 26 27 28 29 21 211 212 213 214 215 216 217 Jan-Jul '18 Adequate buffer from global headwinds 11 1 9 8 7 6 5 4 3 2 1-1 1. 8. 6. 4. 2.. Source: BSP Resilient foreign direct investments Non-residents' direct investments, by instrument (USD bn, net) 25 26 27 28 29 21 211 212 213 214 215 216 217 Jan- Jan- Jun Jun Equity and investment fund shares Debt 217 218 Ample cushion from external headwinds 6. 4.1 3.4.6 FX reserves (USD bn) and months of import cover 81.6 77.9 8. 7.1 25 26 27 28 29 21 211 212 213 214 215 216 217 end- Aug FX reserves Import cover (RHS) '18 3.8 2. 14. 12. 1. 8. 6. 4. 2.. 3 25 2 15 1 5 Structural flows from remittances and BPOs Overseas Filipinos' cash remittances and BPO revenues (USD bn) BPO revenues Remittances *217 and 1H 218 BPO data based on BOP concept 9. 8. 7. 6. 5. 4. 3. 2. 1.. Improved debt profile External Debt External Debt Ratio 28.1 22.1 11. External debt (USD bn) and external debt/gdp, (%) 16.6 73.1 72.2 23.3 22.5 1
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Market-determined exchange rate Peso per US dollar Exchange Rate 56 54 52 5 48 46 44 Flexible and competitive peso Peso per USD Rate, REER (198=1) As of 18 September PHP54.7 Real Effective Exchange Rate of the Peso (January 22 August 218 198=1, in index points 14 12 1 8 6 4 42 4 2 Overall Trading Partners Developing Trading Partners Advanced Trading Partners Note: Based on last done deal transaction (closing price) as of 4:pm, Manila Time The REER index represents the Nominal Effective Exchange Rate (NEER) index of the peso, adjusted for inflation rate differentials with the countries whose currencies comprise the NEER index basket. A decrease in the REER index indicates some gain in the external price competitiveness of the peso, while an increase indicates the opposite. The NEER index, meanwhile, represents the weighted average exchange rate of the peso vis-à-vis a basket of foreign currencies. 1/ Overall trading partners: Australia, Euro Area, U.S., Japan, Hong Kong, Taiwan, Thailand, Indonesia, Malaysia, Singapore, South Korea, China, Saudi Arabia, and U.A.E. 2/ Developing trading partners: Hong Kong, Taiwan, Thailand, Indonesia, Malaysia, Singapore, South Korea, China, Saudi Arabia, and U.A.E. Source: BSP 11
Sound banking system effectively funds productive sectors Solid asset growth Improved quality of loan portfolio 18, 16, 14, 12, 1, 8, 6, 4, 2, Total Asset and Deposit Levels (PHP bn) 13,591 1,57 15,166 11,727 27 28 29 21 211 212 213 214 215 216 217 Jun Assets Deposits 218 1, 15,74 9, 8, 7, 6, 12,149 5, 4, 3, 2, 1, Total Loans Outstanding (PHP bn) and NPL ratio (%) 9,352 8,866 7,612 1.9 1.7 1.9 27 28 29 21 211 212 213 214 215 216 217 Jun 218 Total Loans Outstanding NPL, Gross ratio 6 5 4 3 2 1 2 15 1 5 Sustained profitability Net Profit (PHP bn) and ROE (%) 1.5 1.2 9.5 154.3 168.1 172.8 27 28 29 21 211 212 213 214 215 216 217 Jun 218 Annualized Net Profit ROE Source: BSP Note: Except otherwise indicated, statistics refers to Philippine Banking System * UK/Bs Universal and Commercial Bank 14 12 1 8 6 4 2 2. 18. 16. 14. 12. 1. 8. 6. Strong capitalization well above international norms Capital adequacy ratio (%) of U/KBs * BSP Regulatory Requirement: 1% International Standard: 8% 15. 14.5 25 26 27 28 29 21 211 212 213 214 215 216 217 Mar Solo basis Consolidated basis 218 12
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Favorable inflation and credit-liquidity dynamics Inflation expectations remain elevated but are seen to moderate over the medium-term 5. 4. 3. 2. 1. BSP private sector economists' survey mean forecast for full year, in percent Jan. 216 to Feb. 218: 26=1 Mar. to Jul. 218: 212=1 218 219 22 218: 4.7 219: 3.9 22: 3.8 5. 45. 4. 35. 3. 25. 2. 15. 1. 216 217 218 Credit gap remains below the critical BIS threshold Private Sector Credit to GDP Ratio in percent; Gap in percentage points 5. (2-6 percentage-point gap threshold [RHS]) Gap [RHS] Ratio [LHS] Trend [LHS] 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 18 /1 The credit gap measures (in percentage points) the deviation of the private credit-to- GDP ratio from trend. The BIS suggests a critical threshold of 2 to 6 percentage points [Borio, C. The financial cycle and macroeconomics: What have we learnt? BIS Working Paper No. 395. December 212.] 6. 5. 4. 3. 2. 1.. -1. -2. -3. No indications of a credit boom based on IMF threshold Components of Real Bank Lending Growth Year-on-year growth in percent (%), trimmed series ( 22 - Q2 218) 25. computed threshold 2. 15. 1. 5.. -5. -1. -15. 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 18 Growth Trend Cycle Note: A credit boom is identified if the cycle component exceeds the standard deviation of the trend by a factor of 1.75. In the sample period, the standard deviation of the trend is 8.19, resulting in a threshold of 14.1. 13
Key risks and challenges ahead EXTERNAL Political and policy uncertainty Threats of protectionist policies Uncertainty over pace of US Fed policy normalization Spillovers from Chinese economy Rising inflationary pressures amid a booming economy, excise tax adjustments on selected commodities, and higher global price Infrastructure gaps 14
Philippine economy poised to sustain its growth momentum Robust monetary, financial, and external sectors are expected to continue to lend support to economic growth over the near and medium term Indicators Actual Projections/Target 216 217 218 218 219 GDP Growth (%, 2=1) 6.9 6.7 6.3 (Jan-Jun) 7. 8. a/ 7. 8. a/ Fiscal Balance (% of GDP) -2.4-2.2-2.3 (Jan-Jun) -3. a/ -3.2 a/ Headline Inflation (%, 26=1) Merchandise Exports, per BPM6 concept (% growth rate) Merchandise Imports, per BPM6 concept (% growth rate) OF Remittances b/ Amount (USD bn) Growth Rate (%) a/ Approved by the DBCC on 2 July 218. b/ Projection as of 9 August 218 Monetary Board meeting c/ Cash remittances coursed through banks. d/ Approved by the Monetary Board on 17 May 218. *Inflation forecasts as part of macroassumptions for the national budget. r revised; n.a. not available 1.3 2.8 4.8 (Jan-Aug) 4.9 b/ 2. 4. a/ 3.7 b/ -1.1 12.8-1.6 (Jan-Jun) 9. a/ 9. a/ 17.7 14.2 1.7 (Jan-Jun) 1. a/ 1. a/ 26.9 5. 28.1 4.3 Balance of Payments (USD bn) -.4 -.9 Gross International Reserves (USD bn) (Jan-Jul) 16.6 3. -3.7 (Jan-Jul) 29.2 d/ 4. d/ n.a. -1.5 d/ n.a. 8.7 81.6 77.8 (end-aug) 8. d/ n.a. 15
BSP is committed to the effective discharge of its mandates Price Stability Financial Stability Efficient Payments and Settlement 16
Continuing reform agenda towards inclusive growth Market-Oriented Monetary Policy Tools Interest Rate Corridor Phased and Gradual Reduction of RRRs Progressive Prudential and Macroprudential Reforms Digitalization of the Payments System PesoNet InstaPay Enhanced Cybersecurity National Strategy for Financial Inclusion Development of Organized FX Market and Liberalization of FX Rules Development of Domestic Debt Market 17
Key take-aways The Philippines has transformed into one of the fastest growing and most resilient economies in the Asia-Pacific region. The economy is well-placed to pursue growth that is not only robust and resilient but also sustainable and inclusive. We have sufficient buffers that will help mitigate the impact of external and domestic challenges. The BSP remains watchful and vigilant. Utilizing its analytical and surveillance tools for any potential risks to its monetary and financial stability objectives, the BSP stands ready to act appropriately, as deemed necessary. 18
Sustaining Resilience, Expanding Opportunities for Inclusive Growth Deputy Governor Diwa C. Guinigundo Bangko Sentral ng Pilipinas Source: Google images 19