Economic Snapshots - Second Quarter 2016

7/25/2019 Economic Snapshots - Second Quarter 2016

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QUICK FACTS AND FIGURES OF THE PHILIPPINE ECONOMY

IN THIS ISSUE:

Latest Economic Performance:Total Investment Growth, Consumer Outlook, Labor Force

and Projected Growth Rate

State of the National Economy:

Inflation Rates, Cash Remittances, and Employed Persons

by Sector

Synopsis:

Incoming Administrations 10-point Economic Agenda


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2picture credit: industriall-union.org

June 2016 2nd QUARTER ECONOMIC SNAPSHOTS

This issue will give an overview of where the outgoingAquino administration is leaving the Philippine economy after

six years of its Daang Matuwid platform and of how the economy couldlook like under the incoming administration of President Rodrigo Duterte.

For the latter, this issue asks three questions: Will theincoming government continue and build on the reforms

and programs of the previous administration?Introduce large changes? Would this bode well for

Philippine economic growth and development?


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3ECONOMIC SNAPSHOTS 2ndQUARTER June 2016

Overview of the Philippine Economy

A Fast-Growing, Well-Insulated Economybut Lagging Investments

The Philippine economy prides itself in having beenresilient during the global financial crisis of 2008. Until now,the Bangko Sentral ng Pilipinas (BSP) says that the countryhas a well-insulated economy, characterized by steadyremittances, robust private consumption and capitalformation and, lastly, a well-maintained services sector anda booming industrial base.

The Gross Domestic Product (GDP) grew by 6.9 percentin the First Quarter of 20161, growing faster than theeconomies of China, Vietnam, Indonesia and Malaysia at6.7, 5.5, 4.9 and 4.2 percent2, respectively, in the said period.

According to the Philippine Statistics Authority (PSA), themain driver of GDP growth was the services sector whichaccelerated to 7.9 percent from 5.5 percent while industrygrew by 8.7 percent from 5.3 percent from last year.3On theother hand, the agriculture sector remained in a dire stateas it continued to declinethis quarter by 4.4 percent,representing its fourth consecutive quarterly decline sincethe second quarter of 2015.4 Meanwhile, Services still hadthe largest portion of GDP at 56.8 percent, followed byIndustry and by Agriculture, Hunting, Forestry and Fishing(AHFF) at 34 and 9.2 percent, respectively. Source: National Economic and Development Authority

5

Figure 1: PH Grows 6.9 Percent in Q1 2016(2010 2015)


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4 June 2016 2ndQUARTER ECONOMIC SNAPSHOTS

Per capita GDP expanded by 5.2 percent ascompared to 3.2 percent in the same quarter of 2015;

per capita Gross National Income (GNI) rose by 5.8percent. For the National Economic DevelopmentAuthority (NEDA), the economic growth achievedwas above market expectations given averageconsensus forecast of 6.6 percent for the first quarter. 6In fact, NEDA says that this increases the likelihood ofachieving the official GDP growth projection of 6.8 to7.87 for 2016. This makes the government confidentthat the growth prospect of our economy for thenext quarters is encouraging.8

Consistently strong growth was accompanied bya manageable inflation rate of 1.6 percent in May.

The BSP notes that while there was an increase inheadline inflation last month, this was still withinthe BSPs forecast of 1.1-1.9 percent for the month.

The average inflation rate (year-to-date) is now at 1.3percent, still below the BSPs target of between 2.0 to4.0 percent for 2016.9 Inflation was at 1.1 percent inApril 2016.

Source: PSA10

Graph 1: Average Year-on-Year Inflation Rates in the Philippines, All Items(2011 - May 2016)


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Core inflation, which excludes certain volatile foodand energy items also rose slightly to 1.6 percent in

May from 1.5 percent in the previous month,11 theBSP added.

Consumption continues to support GDP growthas both Household Final Consumption Expenditure(HFCE) and Government Final ConsumptionExpenditure (GFCE) grew in the said period. HFCEor private consumption accelerated to 7.0 percentfrom last years 6.1 percent while GFCE or publicconsumption to 9.9 percent from 0.2 percent inthe previous year12. The PSA reports that the sound

performance of public consumption is due to theimplementation of social programs on educationand health and the approval of locally-fundedprojects.13

While contributing a significant share toconsumption, personal remittances from overseasFilipinos (OFs) accelerated by 3.8 percent to US$2.4billion in April 201614. Similarly, the latest BSP reportsays that cash remittances also increased by 4.1percent to US$2.2 billion in April 2016. 15 Source: BSP16

Graph 2: Cash Remittances, in Million US Dollars(2011 April 2016)


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The BSP says that most cash remittancescame from the United States, Saudi Arabia, theUnited Arab Emirates, Singapore, the UnitedKingdom, Japan, Qatar, Hong Kong, Kuwait, andGermany.17

Together with positive hopes for growthdriven by private consumption, the latestLabor Force Survey (LFS) indicates that theemployment rate has also slightly improvedfrom 93.6 percent in April 2015 to 93.9 percent18.Overall, unemployment saw a minor declineto 6.1 percent from 6.4 percent, while theunderemployment rate rose to 18.4 percent

from 17.8 percent.19

LFS results reveal that out of the 39,916,000employed persons in the labor force, those inServices comprise the largest group, followedby those in Industry and in Agriculture.Unemployment is highest among the youth,especially those between 15-24 years of agefollowed by 25-34 age bracket.20

Graph 3: Employed Persons by Sector in the Phili ppines

Source: PSA21


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Foreign direct investments (FDI) reportedlyincreased to 59.1 percent, posting US$364million net inflows in March 2016 from US$229million in the previous year.22 For the firstquarter, FDI rose by 52.1 percent with a totalof US$1.3 billion in net inflows. BSP revealsthat the Philippines has had 69 consecutivequarters of positive growth,23and the bank isconfident in the countrys growth prospectsfor the year ahead.

Moreover, investment growth has indeedimproved with investment in Fixed CapitalFormation increasing to 25.6 percent in thefirst quarter of 2016 from 8.8 percent during

the same period last year.24 Philippine capitalformation is yet to be at par with its regionalneighbors (see Graph 4).

While the Philippines leads the contributionsto total investment growth in Developing Asia,investment in the Philippines is the lowestwhen reflected as a share of GDP compared toother ASEAN countries (see Graph 5).26

Apart from the investments picture, the PSA

reports that total trade is currently at a deficitof Php 260.7 billion during the first quarter of201628 where total exports trailed behind totalimports.

Source: Asian Development Outlook 201625

Graph 5: Fixed Investment of Selected ASEAN Countries, % of GDP(2000 2015)

Source: Asian Development Outlook 201627

Graph 4: Contributions to total investment growth in Developing Asia, in percentage points(2014 and 2015)


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Graph 6: Overall Consumer Outl ook Index for the Philippines(2007 2016)

Source: BSP34

On one hand, growth of both exports of goods andexports overall decelerated to 5.2 from 9.7 percentand to 11.1 from 13.3 percent for the First Quarters

of 2016 and 2015, respectively.29PSA points out thatthe following commodities pulled down the totalexports growth: Articles of Apparel and ClothingAccessories, negative 44.9 percent from 17.7 percent;Office Equipment, negative 53.2 percent from 2.6percent; and, Coconut Oil, negative 44.8 percentfrom 70.2 percent.30

On the other hand, total Imports accelerated by15.9 percent in the first quarter of 2016 from 13.1percent during the previous year.31Top contributors

are: Transport Equipment and Semiconductors with37.5 percent and 22.9 percent from negative 13.1percent and 82.7 percent, respectively; Machineryand Mechanical Appliances, 34.8 percent fromnegative 6.3 percent; Electrical Machinery, at 52.7percent from 8.0 percent; and Textile Yarns at 33.2percent from 2.7 percent.32

Positive Growth Prospects Supported

by Consumer Sentiment and Potential

Economic Productivity

BSPs latest Consumer Expectations Survey showsthat the consumer outlook was broadly steady 33

with confidence index (CI) -6.4 percent for this year sSecond Quarter, despite a marginal decline from -5.7percent for the previous quarter.

The surveys respondents attributed theiroutlook to one or a combination of the following:(a) increase in the number of employed family

members, (b) increasing family income due tohigher salary and stronger business activity, (c) lowerhousehold expenses as well as debt payments, and(d) improvements in the peace and order situation,(e) the Pantawid Pamilyang Pilipino Program (4Ps),and (f ) the coming change of administration as


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well as election of new government officials. As theBSP notes, Their positive sentiments were howevercounterbalanced by the adverse effects of El Nio on

crop production which resulted in poor harvest.35

Consumer confidence is measured across threecomponents: the countrys economic condition,family financial situation and family income36. BSPsurvey results explain that while consumers outlook

on the countrys economic condition weakened,there was an improved sentiment on familyfinances and income which registered all-time high

CIs at -4.4 percent and 0.9 percent, respectively,since Q1 2007.37Optimism among consumers waslargely because of the perception of additionalincome, more working family members and briskerbusiness.38

While consumer confidence is steady, the AsianDevelopment Bank (ADB), in its latest outlook onthe Philippine economy, emphasizes that growth

is projected to pick up with higher investment andconsumption while inflation is forecast to only pickup speed moderately.39

However, according to ADB, sustaining stronggrowth will require policy continuity supporting thedevelopment of infrastructure and human capital,improvements to the investment climate, andgovernance reform.40 Economic momentum suchas that from public spending on infrastructure needsto be continued and, as NEDA observed, support for

agriculture has to be improved.

ADB also says that as strong and acceleratinggrowth is foreseen for ASEAN, the Philippine economymay be a significant beneficiary. From the 20002007average, potential growth in 20082014 picked up ineconomies as diverse as Indonesia (by 0.9 percentagepoints) and the Philippines (0.5).41

Graph 7: Actual and Projec ted Growth Rate of GDP for ASEAN(2013 2017)

Source: ADB Outlook Report 2016 42


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Graph 8: Labor Force and Potential Output Growth of ASEAN (%)

Source: ADB Outlook Report 201645

ADB also notes the Philippines strengtheningfiscal position, as the ratio of government debt toGDP declined to 44.8% in 2015, the lowest in over adecade. 43

Despite its optimism for 2016 and even 2017, ADBis cautious about the countrys labor productivitygrowth, which has been observed to be laggingpotential for most of the period.44

The Philippines has a relatively young population.This is an advantage that the Philippines has overits neighbors, as this demographic sweet spot is anopportunity to raise growth. However, this sweet spotcan only be maximized if available opportunitiesproductive and quality jobsare available for the

labor force. Graph 8 shows that the Philippines,where growth of the labor force is among the fastest,is second only to Vietnam in terms of the potentialfor improving labor productivity.

Further, the graph below shows that there ispotential for the Philippine labor force to growat a high rate. ADB emphasizes that working-agepopulation has a direct proportional impact on thepotential growth rate.46

For ADB, high youth unemployment in the countrymay be explained by the lack of jobs that is able toboth absorb new entrants into the labor force andthe 2.5 million unemployed, half of them youngpeople.48To address this, employment generationshould cut across all sectors not just in BPO, tourismand retail but also in industry and agriculture. At the

Graph 9: Working-age Population Growth Rates of ASEAN

Source: ADB Outlook Report 2016 47


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same time, government can also do something about the mismatches between the education and skills of young people and needs ofthe labor market.49 This is where the relevance and quality of technical and vocational training programs and strengthening certificationframeworks50comes in.

Incoming Administrations 10-point Economic Agenda51

Although there has been no official economic policy, incoming President Rodrigo Duterte has been very vocal and consistent that the waragainst crime and drugs will be the center of his platform. In addition to this, a 10-point economic agenda was also released to the publicwherein major reforms in the tax system, something the public is keen on, play a part.

Table 1: Duterte Administrations 10-point Economic Agenda


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ENDNOTES:

1 Philippine Statistics Authority. (2016). Highlights: First Quar-ter 2016. Retrieved from: http://psa.gov.ph/sites/default/files/Highlights%20Q1%202016.pdf

2 Schnabel, C. (2016, May 19). PH GDP grows 6.9% Q1 2016.Rappler. Retrieved from: http://www.rappler.com/business/economy-watch/133500-philippines-gdp-q1-20163 Philippine Statistics Authority. (2016). Highlights: First Quar-ter 2016. Retrieved from: http://psa.gov.ph/sites/default/files/Highlights%20Q1%202016.pdf4 Ibid.5 National Economic Development Authority. (May 2016). Re-trieved from: http://www.neda.gov.ph/2016/05/19/statement-of-socioeconomic-planning-secretary-emmanuel-esguerra-on-the-2016-q1-performance-of-the-philippine-economy/6 Ibid.7 Ibid.8 Ibid.9 Bangko Sentral ng Pilipinas. (June 2016). May Inflation High-er at 1.6 Percent. Retrieved from: http://www.bsp.gov.ph/publi-cations/media.asp?id=408010 Philippine Statistics Authority. (June 2016). Summary Infla-tion Report Consumer Price Index (2006=100): May 2016. Re-trieved from: http://psa.gov.ph/statistics/survey/price/summa-ry-inflation-report-consumer-price-index-2006100-may-201611

Ibid.12 Philippine Statistics Authority. (2016). Highlights: First Quar-ter 2016. Retrieved from: http://psa.gov.ph/sites/default/files/Highlights%20Q1%202016.pdf13 Ibid.14 Bangko Sentral ng Pilipinas. (June 2016). Personal Remit-

Table 2: Key Macro-Economic and Social Indicators

(2014 2016)

Source: PSA52


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tances Reach US$9.6 Billion in January-April 2016. Retrievedfrom: http://www.bsp.gov.ph/publications/media.asp?id=408615 Ibid.16 Ibid.17 Ibid.

18 Philippine Statistics Authority. (June 2016). Employment ratein April 2016 is estimated at 93.9 percent. Retrieved from: https://psa.gov.ph/content/employment-rate-april-2016-estimated-939-percent19 Ibid.20 Philippine Statistics Authority. (June 2016). Table 3: Underem-ployed Persons by Hours Worked and S ector, and UnemployedPersons by Age Group. Retrieved from: https://psa.gov.ph/sites/default/files/attachments/hsd/pressrelease/TABLE%203%20Underemployed%20Persons%20by%20Hours%20Worked%20and%20Sector%2C%20and%20Unemployed%20Persons%20%20by%20Age%20Group%2C%20Sex%20and%20Highest%20Grade%20Completed%2C%20Philippines%20April%202016.pdf

21 Philippine Statistics Authority. (June 2016). Table 1: Em-ployed Persons by Sector, Occupation and Class of Worker. Re-trieved f rom: https://psa.gov.ph/sites/default/files/attachments/hsd/pressrelease/TABLE%201%20Employed%20Persons%20by%20Sector%2C%20Occupation%20and%20Class%20of%20Worker%2C%20Philippines%20April%202016.pdf22 Bangko Sentral ng Pilipinas. (June 2016). Foreign direct in-vestments grow by 59.1 percent in March 2016; First Quarter2016 Level Reaches US$1.3 Billion. Retrieved from: http://www.bsp.gov.ph/publications/media.asp?id=408223 Ibid.24 Philippine Statistics Authority. (2016). Highlights: First Quar-

ter 2016. Retrieved from: http://psa.gov.ph/sites/default/files/Highlights%20Q1%202016.pdf25 Asian Development Bank. (2016). Philippines: Economy.Retrieved from: http://www.adb.org/sites/default/files/publica-tion/182221/ado2016.pdf26 Based on data availability

27 Ibid.28 Philippine Statistics Authority. (2016). Highlights: First Quar-ter 2016. Retrieved from: http://psa.gov.ph/sites/default/files/Highlights%20Q1%202016.pdf29 Ibid.30 Ibid.

31 Ibid.32 Ibid.33 Bangko Sentral ng Pilipinas. (June 2016). Consumer expecta-tions survey: Second Quarter 2016. Retrieved from: http://www.bsp.gov.ph/downloads/Publications/2016/CES_2qtr2016.pdf34 Ibid.35 Ibid.36 Ibid.37

Ibid.38 Ibid.39 Asian Development Bank. (2016). Philippines: Economy.Retrieved from: http://www.adb.org/sites/default/files/publica-tion/182221/ado2016.pdf40 Ibid.41 Ibid.42 Raw data from the ADB report43 Asian Development Bank. (2016). Philippines: Economy.Retrieved from: http://www.adb.org/sites/default/files/publica-

tion/182221/ado2016.pdf44 Ibid.45 Raw data from the ADB report46 Asian Development Bank. (2016). Philippines: Economy.Retrieved from: http://www.adb.org/sites/default/files/publica-tion/182221/ado2016.pdf

47 Raw data from the ADB report48 Asian Development Bank. (2016). Philippines: Economy.Retrieved from: http://www.adb.org/sites/default/files/publica-tion/182221/ado2016.pdf49 Ibid.50 Ibid.

51 Philippine Daily Inquirer. (2016, June 24). Belmonte hailsDutertes 10-point economic agenda. Retrieved from: http://newsinfo. inquirer.net/792253/belmonte-hails-dutertes-10-point-economic-agenda52 Philippine Statistics Authority. (March 2016). Philippine sta-tistics in brief. Retrieved from: http://psa.gov.ph/sites/default/files/PSBmar2016.pdf


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is a quarterly publication that presents the current economic situationof the Philippines through various economic indicators as monitored by local andinternational nancial institutions. This includes the countrys most recent dataon Gross Domestic Product, Foreign Direct Investments and Remittances,among others. In addition, studies on the economic performance and

nancial forecasts for the Philippines are included in this report.

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