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Analytics of the Philippine Economy Continuity++ Building & Sustaining Strength Briefing on the Philippine Economy 9 March 2018 Davao Prospects for the Philippine economy remain bright PHL economy is expected to sustain growth


  1. Analytics of the Philippine Economy Continuity++ Building & Sustaining Strength Briefing on the Philippine Economy 9 March 2018 Davao

  2. Prospects for the Philippine economy remain bright � PHL economy is expected to sustain growth momentum over the medium term 7.0 – 7.0 – 7.0 – 6.9% 6.7% 8.0% 8.0% 8.0% 2016 2017 2018 2019 2020 6.7% 6.6% (IMF) (IMF) 6.7% 6.7% (WB) (WB) 6.7% 6.8% (ADB) (ADB) 2

  3. PH leads the ASEAN pack “The Philippines will continue to be the fastest-growing economy in ASEAN, despite some stabilization of investment growth.” World Bank Global Economic Prospects (Jan 2018) 3

  4. Prevailing narrative is favorable � Supportive macroeconomic environment: � broad-based growth low inflation comfortable external payments � Healthy banking system � Disciplined policy frameworks Key Indicators 2005 – 2009 2010 – 2015 2016 2017 6.2 6.9 4.4 Strong growth Real GDP growth (%) 6.7 3.4 1.8 5.5 Low inflation 3.2 Headline inflation (%) Sustained fiscal -1.7 -1.8 -2.4 Fiscal balance (% of GDP) -2.2 discipline 55.6 65.6 47.2 67.3 Domestic Liquidity (% of GDP) 13.2 12.8 15.1 Ample liquidity & (% y-o-y change) 11.9 credit Outstanding loans -U/KBs 15.7 17.3 8.9 19.4 (% y-o-y change) Non-performing loans 2.2 1.4 5.0 1.2 Sound & stable (% of total loans) - U/KBs* banking system Capital Adequacy Ratio 16.7 17.2 15.1 15.7 (end-Sep) ( consolidated basis) - U/KBs** 8.2 -1.0 5.1 Current Account Balance ($ Bn) 0.03 (Jan-Sep) 3.2 -0.3 3.6 0.01 (Jan-Sep) (% of GDP) Robust external Gross International Reserves 6.4 10.8 8.8 8.3 (months of imports of g/s/inc) payments position 46.1 30.9 24.5 23.4 (end-Sep) External debt (% of GDP) External DSR (% of exports of 12.3 7.9 7.0 6.2 (Jan-Nov) 4 goods, services & income)

  5. PHL economic growth has been sustained… Positive economic growth for 76 consecutive quarters Real GDP Growth (year-on-year growth, in %) Average: 6.6% (2013-2017) Average: 5.2% (1999-2017) 5

  6. …and is robust as well as broad-based Services sector has remained the key driver of growth… …but share of industry (e.g., mfg., construction) has been expanding Rising contribution of capital formation GDP breakdown by expenditure (%) 6 Source: Philippine Statistics Authority (PSA)

  7. Aggressive investment agenda is the springboard to stronger growth ������������������������������������ 6 1,000.0 5.4 Infrastructure budget (PHP bn) % of GDP * 5.5 900.0 5 4.5 800.0 4.1 4.5 700.0 4 600.0 3.5 2.7 2.7 3 500.0 2.5 400.0 2.0 1.8 1.8 2 300.0 1.5 200.0 1 100.0 0.5 0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 ������������������ ��������������� ��������������������������������������������������������������������������������������������������������� �� ������������ ������!������������!���������"� !!#�$����������%����&'����� 7

  8. Rising investments boost growth & create jobs Growing investment pledges favorable Considerable foreign interest in for growth prospects manufacturing sector Economy increasingly supported by a vibrant manufacturing sector Real growth (%) (�����) �(*' +,�*' (�' � -��������� �������� �. ��� �����������/ -��������� ��������� *������� 0 ���� �� -���������� " �-#' !���1 ����������� !���������� "!�!#' ���������� ,������� 2��� *�������. "�,2*#' 8 (���� �. $����������� *�������. "( $*#' *�������. �� ��� 3������� *��� �� ����� "*3* #' �-�*��������� 4����� �� $����� $������� " �-�*4$$#' ��� !���.�� ,������� 2��� *�������. "!,2*#

  9. Stable inflation supports greater economic activity Well-anchored inflation expectations Low and stable inflation Source: PSA Source: BSP Inflation Forecasts for the 2018 2019 Philippines Bloomberg Consensus 3.6 3.4 Forecasts Oxford Economics 3.6 3.9 Asia Pacific Consensus 3.9 3.6 Sources: AP Consensus (February 2018), Bloomberg Contributor Forecasts (as of 8 February 2018), Oxford Economics Forecasts as of 8 9 February 2018

  10. �������������������������������������������������������� ����������������������� �������������������������������������� � .��������������������������!�������� !�������"��������#������������������������ ���!�������$%���& /��(.��������0����������!������������������������$%��������& 2017 BPO revenues based on IBPAP ����������������������������������(��()*�� �����������!�� +�������������$%��&������������������,)*���$-& "'������!���$%��&������������������������!�� ������������������

  11. Strong imports growth has led to narrowing of current account surplus Current account components (in US$ bn) 40 5 4 30 3 20 2 10 1 0 0 -10 -1 -20 -2 -30 -3 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Goods Exports (lhs) Goods Imports (lhs) BPO receipts (lhs) OF remittances (lhs) Travel receipts (lhs) Current Account Balance (rhs) Goods Imports, by major commodity 100,000 40.0 30.0 80,000 20.0 in million US$ 60,000 in percent 10.0 0.0 40,000 -10.0 20,000 -20.0 - -30.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Capital Goods Mineral Fuels and Lubricant Mat/Acc. for Manufacture of Elec. Eqpt. 11 Other Raw Materials/Intermediate Goods Consumer Goods Other Imports Total Imports Growth (in %, RHS)

  12. Peso is flexible and competitive Philippine Peso (PHP) per USD Rate 8 March 2018: 52.03 01 Jan 2016: 47.06 12 Source: BSP

  13. Banking system remains sound & stable Quality of assets & loan portfolios PHL banks are adequately capitalized, sustain improvement providing buffers to mitigate shocks Sep 2017: CAR (solo): 15.0 % CAR (consolidated): 15.7 % end-December 2017: NPL ratio: 1.2 % NPA ratio: 1.3 % 13 Source: BSP

  14. T ax reform => headroom for targeted social spending & infrastructure upgrading Fiscal Expenditure, Revenue and Deficit (% of GDP) 20 17.9 17.7 17.5 17.6 17.0 16.9 16.7 16.7 16.8 16.8 16.5 16.3 16.0 15.7 15 16.5 15.8 15.6 15.6 15.7 15.2 14.9 15.1 14.5 14.4 14.0 14.0 13.8 13.4 10 5 0 -0.2 -0.6 -1.0 -0.9 -0.9 -1.4 -2.0 -5 -2.3 -2.2 -2.4 -2.6 -3.0 -3.0 -3.0 -3.0 -3.0 -3.5 -3.7 -3.7 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P 2019P 2020P 2021P 2022P NG Revenues/GDP NG Expenditures/GDP NG Deficit/GDP Infrastructure Program, Obligation Basis 2018-2022 14

  15. Improved potential capacity helps sustain growth trajectory Incremental Capital-Output Ratio Total Factor Productivity 10.0 2.5 8.0 2.0 6.0 1.5 9.5 2.1 4.0 1.0 2.0 6.4 2.0 4.2 0.5 3.7 0.0 0.5 0.0 0.0 1989 - 1992 1993 - 2001 2002 - 2009 2010 - 2017 1989 - 1992 1993 - 2001 2002 - 2009 2010 - 2017 Source: Latest BSP staff estimates Employment Share by Class of Workers Employment Share by Educational Attainment 3.7 4.4 25.8 26.5 27.8 32.3 4.7 6.0 12.3 38.1 41.4 62.5 51.1 33.4 26.6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 College Post Secondary High School Employer in Own Family Self-Employed Elementary (w/ SPED) No Grade Completed Unpaid Worker Wage and Salary Workers 15 Source: PSA

  16. Credit rating upgrades: show of faith Philippine Credit Rating Affirmed BBB+ rating stable outlook BBB+ 2 August 2016 Upgraded rating to BBB stable outlook BBB 10 December 2017 Re-affirmed BBB rating stable outlook BBB 28 April 2017 Re-affirmed Baa2 rating stable outlook Baa2 27 June 2017 16

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