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Philippines Economic Update and Medium term challenges

February 18, 2019

Key Messages

2

• Increased global uncertainties and high inflation have impacted growth performance in 2018.

• The economic growth prospect remains positive but uncertainties have increased.

• In the long term, the Philippines needs to accelerate capital accumulation and sustain high productivity growth to boost inclusive growth.

Recent development Increased global uncertainties and high inflation have impacted growth performance in 2018.

3

Economic growth moderated but

remains strong, driven by robust

investment growth

4

-6

-4

-2

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018

Private Consumption Govt Consumption Investments

Discrepancy Net Exports GDP growth

Source: Philippine Statistics Authority (PSA)

5

Durable equipment and construction drove fixed capital

formation while national government ramped up

infrastructure spending.

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2014 2015 2016 2017 2018

Perc

en

tage

po

int

Fixed Capital Formation Composition Contribution to GDP Growth

Intellectual Property ProductsBreeding Stock & Orchard Dev'tDurable EquipmentConstructionFixed Capital

486.5

728.1

2017 2018

PH

P B

illio

ns

NG Infrastructure and Other Capital Outlays: January to November

+49.7%

Source: PSA

Source: Department of Budget and Management (DBM)

6

Source: PSA

-40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

In p

erc

en

t

Exports Imports

Import growth remained strong while export growth

softened.

Source: PSA

Current Account balance (% of GDP)

Current account balance deteriorated sharply

in the first three quarters of 2018.

-0.4

-3.9 -3.7 -5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2014 2015 2016 2017 2018

Source: Bangko Sentral ng Pilipinas

Inflation increased rapidly and peaked on the

third quarter of 2018.

8

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Dec

-18

IN P

ERC

ENT,

YO

Y

Core Inflation Headline Inflation

Source: PSA

Food and Non-

Alcoholic Beverages

Housing, Water,

Electricity, Gas And

Other Fuels

Transport

Restaurants And

Miscellaneous Goods And

Services

Alcoholic Beverages,

Tobacco And Other

Vegetable-Based Tobacco

Products

5.2 2018 Average Inflation

52%

17%

10%

9%

6%

Fiscal policy remained expansionary

supported by strong revenue growth.

Source: DBM

15.1 15.8

15.2 15.7 16.9

15.7 16.7

17.6 17.9

20.0

-0.6 -0.9

-2.4 -2.2

-3.0

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

0.0

5.0

10.0

15.0

20.0

25.0

2014 2015 2016 2017 2018 Q1-Q3

Fisc

al b

alan

ce (

Perc

ent

of

GD

P)

Perc

ent

of

GD

P

Revenues Expenditure Fiscal Balance (RHS)

Growth outlook and risks The economic growth prospect remains positive but uncertainties have increased.

10

11

49

50

51

52

53

54

55

3.0

3.5

4.0

4.5

5.0

Jun-1

7

Se

p-1

7

De

c-1

7

Mar-

18

Jun-1

8

Se

p-1

8

No

v-1

8

Industrial production

New export orders (RHS)

Global growth is moderating.

0

2

4

6

8

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

World Advanced economies EMDEs

Percent

Source: World Bank, Global Economic Prospect January 2019

Philippine growth outlook (as of December 21, 2018)

12

6.1

6.9 6.2

6.5 6.6 6.6

0

1

2

3

4

5

6

7

8

9

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Actual and Forecast Growth (in percentage)

December 2018 Forecast Historical Growth

Forecast

Medium to long term challenges The Philippines needs to accelerate capital accumulation and sustain high productivity growth to boost inclusive growth.

13

Income per capita

2000 2017 2040

20

11

USD

5.3%

6.5%

43.1

33.7

0

2000 2015 2040

%

Poverty rate (USD 3.2/day)

Ambisyon Natin 2040 goals

0

10

20

30

40

50

Philippines Malaysia Thailand Indonesia Vietnam China

% o

f G

DP

Gross capital formation (1998-2016)

To achieve the goals, the Philippines

needs to

accelerate capital investment…

-6

-5

-4

-3

-2

-1

0

1

2

3 Contribution to Growth of Total Factor Productivity

1981-1986 1986-1991 1991-1996 1996-2001 2001-2006 2006-2011 2011-2016

%

and sustain high total factor productivity

growth.

0 1 2 3 4 5 6

Philippines

Thailand

Vietnam

Indonesia

China

Malaysia

(7 = market less dominated)

Through improving market

competition…

0

40

80

120

160

China Indonesia Philippines Thailand Vietnam Malaysia

Trade as a share of GDP (2000-2017)

Increasing foreign trade …

-2

-1

0

1

2

3

4

5

6

7

Philippines Indonesia Malaysia Thailand China Vietnam

Net FDI inflow: Philippines vs. Regional peers (% of GDP)

1999-2014 2005-2010 2011-2016

… increasing FDI to boost knowledge

spillover

0

2

4

6

Malaysia China Indonesia Thailand Vietnam Philippines

Ease of hiring and firing (7=best)

… and reducing labor market rigidities

Thank you!

21

For questions please contact:

Rong Qian, Senior Economist, World Bank Philippines

rqian@worldbank.org

Please find our monthly economic update here: http://www.worldbank.org/en/country/philippines

Or

http://www.worldbank.org/en/country/philippines/whats-new