The Economy in the Near Term
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Transcript of The Economy in the Near Term
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1
THE ECONOMY IN THE NEAR TERM
8 August 2011
Prof. Ernesto M. Pernia, Ph.D.
University of the Philippines, School of Economics
Highlights of the PH economy, ‘11-’13
• GDP will grow 5.0% in 2011; growth marginally
decelerates to 4.8% and 4.7%, respectively, in the next
2 years
• Higher inflation, weak global economy are challenges
to policy makers of sustaining “fighting” growth
targets
• BPO, remittances keep GDP growth up
• Investment, PPP offers growth opportunities
• KEY CHALLENGES: strengthen fiscal position, improve
investment climate, unequivocal and resolute
population policy
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2
PH economy saw modest
GDP growth in Q1:2011
GDP
GNI
0%
2%
4%
6%
8%
10%
12%
14%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011
Source: National Statistic Coordination Board
2011 first quarter economic highlights
Inflation creeping up
as GDP growth slowed
2007
2008
2009
2010
2011
0%
2%
4%
6%
8%
10%
12%
14%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: National Stati stics Office
Headline inflation, 2007 – June 2011
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IDEA forecasts assumptions
2010 2011 2012 2013
Inflation rate, % 3.8 4.9 3.8 3.6
91-day Treasury bill rate, % 3.5 2.1 2.5 3.0
Peso-dollar exchange rate 45.1 43.1 42.4 41.8
Remittances growth rate, % 8.4 8.0 10.0 10.0
NG deficit, in billion pesos (314.5) (326.9) (286.0) (286.0)
US GDP growth rate, % 2.9 1.6 (0.2) (2.0)
Japan GDP growth rate, % 1.5 (2.0) 0.0 1.8
IDEA forecasts
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011/f 2012/f 2013/f
Source: National Stati stical Coordination Board; IDEA
Gross domestic product and gross national income, 1999 - 2013
GDP
GNI
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Clouds in the horizon
Global food prices
remain high and volatile
Source: Food and Ag riculture Organization
Food and Agriculture Organization food price index
(2002-2004 = 100), 2007 – June 2011
2008
2009
2007
2010
2011
120
140
160
180
200
220
240
260
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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Oil price remains high
due to increased demand
2010
2007
2009
2008
2011
20
40
60
80
100
120
140
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: World Bank
Dubai oil price per barrel in US$, 2007 – June 2011
FBT, services, and
home and repair drive inflation…
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
J a n - 1 0
F e b
M a r
A p r
M a y
J u n
J u l
A u g
S e p
O c t
N o v
D e c
J a n - 1 1
F e b
M a r
A p r
M a y
Inflation (headline)FBT
Clothing
H&R
FLW
Services
Misc
Source: National Stati stics Office
Contributions to headline inflation, 2010 – May 2011
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…but consumers seem less
pessimistic in the year ahead
Current quarter
Next 12 months
Next quarter
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011
Source: Bangko Sentral ng Pil ipinas
Consumer economic outlook index, 2008 – Q2:2011
US shows anemic growth, Japan signals
sharp downturn
Source: US Bureau of Economic Analysis, Japan Statistics Bureau and Statistics Center
Real GDP growth rates of Japan and the US, 2009-2011:Q1
US
Japan
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2009 2010 2011
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Redeeming grace is Asia
(excl. Japan)
East Asia andPacific
India
Developing
World
High income
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2008 2009 2010 2011/f 2012/f
Source: World Bank Global Economic Prospects, June 2011
Comparative GDP growth rates by region, 2008 - 2012
Silver linings in the clouds
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Remittances surging despite
modest global economic growth…
2008
2009
20102011
1.2
1.3
1.4
1.5
1.6
1.7
1.8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: National Stati stics Office
Remittances in current billion dollars, 2008 - May 2011
…but inflow only maintains
peso value two years ago
2010
2008
2011
2009
50
55
60
65
70
75
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: National Stati stics Office
Remittances in current billion pesos, 2008 - May 2011*
*Using monthly average nominal exchange rate
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BPO poised for
strong growth once again
Growth rate(right scale)
Level(left scale)
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009 2010 2011/f
Source: Business Processing Association of the Philippines
BPO revenues in current billion dollars, 2004 – 2011/f
Sovereign ratings upgrades
provide tailwind for investment…
Rating agency Long-term currency ratingForeign Local
Standard and Poors' BB BB+
Moody's Ba2 Ba2
Fitch Ratings BB+ BBB-
Source: Bangko Sentral ng Pil ipinas
Latest Philippine long-term sovereign credit ratings
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…investment grade requires
stronger NG’s fiscal position
Source: Bureau of Treasury
NG revenue, expenditure, and cash position in current billion
pesos, 2010 – May 2011
Cash position(right scale)
Expenditure(left scale)
Revenue(left scale)
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
0
20
40
60
80
100
120
140
160
180
PPP also addresses corruption
and bureaucracy policy gaps
NAIA Expressway (Phase 2)
Daang Hari - SLEX link road
NLEX - SLEX connector
MRT/LRT Expansion Program: LRT 1 South Extension Project
CALA Expressway – Manila Side Section (27.5 km)
New Bohol Airport Development
Puerto Princesa Airport Development
New Legaspi (Daraga) Airport Development
Privatization of Laguindingan Airport Operation and Maitenance
LRT Line 2 East Extension Project
Source: Public-Private Partnership Center
Projects for 2011
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Sectoral outlook
Favorable outlook on crops
buoys prospect for AFF
Source: National Stati stics Office
Agriculture, Fishery, and Forestry growth rate, 1999 - 2013
-2%
0%
2%
4%
6%
8%
10%
12%
1999 2000 2001 2002 2003 200 2005 2006 2007 2008 2009 2010 2011/f 2012/f 2013/f
GDP
AFF
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Solid mining/quarrying, construction point
to sustained industry growth
Source: National Stati stics Office
Industry growth, 1999 - 2013
GDP
Industry
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1999 2000 2001 2002 2003 200 2005 2006 2007 2008 2009 2010 2011/f 2012/f 2013/f
Real estate/business activities, trade lend
optimism to services growth
Source: National Stati stics Office
Services growth rate, 1999 - 2013
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011/f 2012/f 2013/f
GDP
Services
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Continuing challenges
Employment growing,
unemployment hardly improved
Unemployed(left scale)
Employed(right scale)
Underemployed(left scale)
32,000
33,000
34,000
35,000
36,000
37,000
38,000
0
2,000
4,000
6,000
8,000
10,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q4 Q1 Q2
2007 2008 2009 2010 2011
Source: National Stati stics Office
Employment picture, 2007-2011:Q2
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Only modest cut in poverty incidence from
2003 to 2009…
24.9%26.4% 26.5%
0%
5%
10%
15%
20%
25%
30%
2003 2006 2009
Source: National Statistics Coordination Board
Actual poverty incidence among population vs target, 2003-2009
… highly uneven poverty rates across
regions
4.0%
13.9%
18.8%
22.9%
15.3%
23.3%
31.2%
35.7%
31.3%
35.0% 35.5%
39.6%
45.1%
41.4%43.1%
47.8%45.9%
0%
10%
20%
30%
40%
50%
60%
Actual poverty incidence among population vs target
by region, 2003-2009
Source: National Statistics Coordination Board
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KEY CHALLENGES
• Strengthen fiscal position
– Raise tax effort (better collection and/or new taxes)
– Raise strategic spending (infrastructure, human capital
• Improve investment climate
– Simple and transparent regulatory system, fair and speedy
judicial processes, law and order
– Simple and efficient tax system, labor market flexibility
– Better infrastructure (transport, power water)
• Unequivocal and resolute population policy – (RH/RP/FP) better human resources, employment,
poverty reduction, environment, etc.
THE ECONOMY IN THE NEAR TERM
Thank you.
Prof. Ernesto M. Pernia, Ph.D.
University of the Philippines, School of Economics