Joyce Ann S.

Tilan
BAH

Philippine Economic Update April 2016

Report Highlights

The Philippines remained a strong performer in the region, despite slow global growth.

In the near-term, economic growth is likely to remain strong and is projected to accelerate to 6.4
percent in 2016 before tempering slightly to 6.2 percent in 2017.

Poverty reduction is expected to continue if the country is able to maintain the relatively high
economic growth and the more positive job trends in recent years, despite recent shocks to
agriculture.

Moving full speed ahead: Accelerating reforms to create more and better jobs
Economic and policy developments
The Philippines remained a strong performer in the region, despite slow global growth. Coming
from a slow start in the first half (H1) of 2015 due to weak government spending, the economy bounced
back in H2, bringing full year growth to 5.8 percent in 2015. Among the major economies in the region, the
Philippines is behind China and Vietnam only.
Sustained high non-agricultural growth and effective government programs are helping to improve
the welfare of the poor. Recent estimates suggest that extreme poverty decreased gradually between
2012 and 2014. Extreme poverty is estimated to have decreased from 10.6 percent in 2012 to nine
percent in 2014. After a decrease of only 0.3 percentage points between 2009 and 2012, poverty fell more
rapidly between 2012 and 2014, according to revised purchasing power parity (PPP) estimates. However,
high rates of structural poverty remain, especially among households depending on agriculture.
Prospects and risks
In the near-term, economic growth is likely to remain strong and is projected to accelerate to 6.4
percent in 2016 before tempering slightly to 6.2 percent in 2017. Faster growth in 2016 would be
driven by favorable domestic factors. Private consumption would remain robust, aided by low inflation and

spillovers from increased spending due to the upcoming general elections. Investments will likely support
growth as implementation of private sector, budgeted infrastructure, and public-private partnership (PPP)
projects accelerates.
These growth projections incorporate a number of risks which have remained broadly the same
since the October 2015 edition of the Philippine economic update. The key risks are uneven recovery
of high income economies, slower than anticipated growth of large emerging market economies, financial
market volatilities, slower remittance growth from oil exporting economies, the continuation of El Nio in
H1 2016, delays in PPP projects, and uncertainty around the outcome of the election.
Policies: A retrospective and forward look on how to create more and better jobs
With solid macroeconomic fundamentals and significant fiscal space in place, the Philippines can
now accelerate the reforms needed to achieve more inclusive growth to reduce poverty and boost
shared prosperity. Trends in recent years point to the beginnings of a more inclusive growth pattern,
which needs to be sustained over a longer period before the poor can feel the impact of higher growth and
better governance in their daily lives. In the last six years, the government preserved macroeconomic
stability, promoted transparency, and directed the growing fiscal space towards pro-poor infrastructure and
social services.
What is needed now is to consolidate the reforms made, embark on the next set of reforms and
move ahead at full speed. In the short-term, deepening reforms in budget execution will allow the
country to use its growing fiscal space to increase investments in both human and physical capital, with
positive contributions to near-term growth and quality of jobs. Over the medium-term, accelerated
structural reforms are needed to enhance competition in sectors with high impact on jobs (such as rice,
shipping, and telecoms), securing property rights through more systematic and administrative adjudication
of land rights, and simplifying business regulations to encourage the growth of firms of all sizes, while
increasing tax effort and reforming the budget execution system in order to sustainably ramp up public
investments in infrastructure and social services. In all these, priority is needed in Mindanao, where
decades of conflict and weak, Manila-centric policies have kept it from reaching its potential. To accelerate
reforms in the future, the government, business, labor, and civil society need to work more closely
together to support a package of reforms that will help the country move full speed ahead to create more
and better jobs.
Philippines GDP grows 7% in Q2 2016

MANILA, Philippines (5th UPDATE) Boosted by a strong start to 2016, the Philippine economy grew 7%
in the second quarter of the year.
The latest gross domestic product (GDP) figure announced by Socioeconomic Planning Secretary Ernesto
Pernia on Thursday, August 18, builds on the 6.8% growth recorded in the first 3 months of the year,
which made the Philippines the fastest growing economy in the region.

The government earlier recorded the first quarter economic growth at 6.9%, but the Philippine Statistics
Authority later revised it to 6.8%.

Thursday's announcement of the 7%

growth fell within market expectation of
growth between 6.5% and 7%.
"Among the major Asian emerging
economies, the Philippines likely remains
the fastest or second fastest-growing
economy in the second quarter of 2016,
followed by China, which grew by 6.7%,
Vietnam by 5.6%, Indonesia by 5.2%,
Malaysia by 4.0%, and Thailand by 3.5%,"
Pernia said.
Data for India, he added, is not yet
available but some forecasts put it above
7%.
Pernia also said the latest figures give
government confidence that it would be able
to hit the official government target of 7-8%
for the entire year of 2016.
Services and industry
The high growth recorded for the second
quarter of 2016 was driven mainly by the
industry and services sectors.
The services sector hit 8.4% growth, on the
back of faster growth in trade, transport,
communication, public administration, and
real estate, renting and business activities.
The industry sector, meanwhile, recorded a
growth of 6.9% compared to the 6.1% growth
in the previous year, supported by
manufacturing, construction, and utilities.
Foreign direct investment has also been good this year, already standing at almost $4 billion as of May,
which is more than double the level seen in 2015 from the same time last year.
Dismal agriculture performance

The Director General of the National Economic and Development Authority (NEDA) however lamented the
continued dismal performance of the agriculture sector, which was at -2.1% in the second quarter due to
El Nio.
The government is "concerned" about the decline of agriculture in the last 5 straight quarters and the
threat of La Nia, which is likely to intensify between August and November of this year.
Domestic demand up
Public spending remained strong in the second quarter driven by the boom in public construction and
government consumption, which grew by 27.8% and 13.5%, respectively.
Private consumption also grew stronger in comparison to the previous quarter, benefiting from election
spending which intensified in the final months to the elections in May.
Remittances from overseas Filipino workers, which helps fuel the consumption, also remained strong
despite worries at the start of the year.
Year-to-date remittances hit P13.19 billion as of June 2016, a 3.2% increase from the P12.782 billion
booked in the same period last year, according to the Bangko Sentral ng Pilipinas (BSP).
The BSP also kept its key interest rates steady in its latest monetary board meeting last week amid
manageable inflation.
Overall, domestic demand growth accelerated to 12.3% from 12.0% in the first quarter of 2016.
External demand down
By contrast, Philippine exports suffered due to sluggish global demand, having seen 15 straight months of
declining value. NEDA data showed that overall exports of goods and services continued to slow down to
6.6%, despite the 15.3% growth of services exports.
Imports of goods, on the other hand, rose to 22.9% largely due to increased purchases of capital goods
and durables, which NEDA said indicates an increase of investments from firms.
Services imports remained strong at 13.3%, higher than the 10.3% in the previous quarter.
Economy on track
The April-to-June period covered the final months of former President Benigno Aquino III's administration,
capping 6 years of stellar growth that helped boost the Philippines' credit ratings and end its reputation as
one of the region's economic laggards.
The tail-end of the second quarter also saw President Rodrigo Duterte assume the presidency, with his
economic team promising to retain the previous administration's macroeconomic policies.
The Duterte administration has promised to boost infrastructure spending and indicated that it would raise
the debt ceiling to do so.

The country's new economic managers, however, have lowered full-year GDP expectations for this year to
6%-7%, from the original 6.8%-7.8% due to the effects of the tapering off of election spending, slow
agricultural output due to El Nio, weak infrastructure due to seasonality, and weak external trade.
With the first semester GDP growth of 6.8%, the economy will need to grow by at least 5.1% in the second
half of the year to attain at least the low-end of the growth target, Pernia pointed out.
"While it is normal to see a slowdown in the second semester during election years, and it could possibly
be 1.5 to 2.0 percentage points lower than in the first half, the smooth transition of power and assurance
of macroeconomic policy consistency and continuity by the new administration will likely keep business
and consumer confidence strong to meet the full-year target," he said. With a report from Agence
France-Presse / Rappler.com