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Philippines Economic Update and Medium term challenges
February 18, 2019
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Key Messages
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• 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.
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Recent development Increased global uncertainties and high inflation have impacted growth performance in 2018.
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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)
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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)
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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
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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
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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%
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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)
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Growth outlook and risks The economic growth prospect remains positive but uncertainties have increased.
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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
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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
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Medium to long term challenges The Philippines needs to accelerate capital accumulation and sustain high productivity growth to boost inclusive growth.
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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
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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…
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-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.
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0 1 2 3 4 5 6
Philippines
Thailand
Vietnam
Indonesia
China
Malaysia
(7 = market less dominated)
Through improving market
competition…
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0
40
80
120
160
China Indonesia Philippines Thailand Vietnam Malaysia
Trade as a share of GDP (2000-2017)
Increasing foreign trade …
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-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
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0
2
4
6
Malaysia China Indonesia Thailand Vietnam Philippines
Ease of hiring and firing (7=best)
… and reducing labor market rigidities
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Thank you!
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For questions please contact:
Rong Qian, Senior Economist, World Bank Philippines
Please find our monthly economic update here: http://www.worldbank.org/en/country/philippines
Or
http://www.worldbank.org/en/country/philippines/whats-new