Philippines Monthly Economic Developments January 2020 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a  The manufacturing sector contracted for the twelfth consecutive month.  Total external trade contracted in November.  Full-year 2019 inflation settled within the central bank’s target range. The manufacturing sector production further worsened in contracted by 0.7 percent yoy in November from a 1.0 percent November 2019. The tepid performance of the manufacturing growth in November 2018. The contraction was caused by the sector continued in November, as the volume of production double-digit decline in the export sales of three of the index contracted for the twelfth consecutive month. Factory country’s top ten commodity export groups (i.e. machinery output fell by 6.1 percent year-on-year (yoy) in November, a and transport equipment, ignition and other wiring sets, and reversal from the 1.9 percent growth a year ago, and a further electronic equipment and parts) while electronic products, deceleration from the 4.0 percent contraction in October. The which accounted for nearly 60.0 percent of export sales, only poor performance of the sector was fueled by double-digit grew by 1.4 percent. declines in the manufactures of electrical machinery, The Philippine peso appreciated while the stock exchange petroleum products, and basic metals. Yet, leading indicators rebounded in December 2019. The holiday season likely suggest slightly improved performance in December, as the contributed to strong remittance inflows that helped prop up IHS Markit Philippines Purchasing Managers’ Index inched up the peso. The peso appreciated by 3.9 percent yoy in to 51.7 in December from 51.4 in November, driven by December, closing at Php/US$50.74 from the closing of stronger growth in new orders, although supply side issues Php/US$52.72 in end-December 2018. On a monthly basis, it such as delays in inputs deliveries, raw material shortages, appreciated by 0.1 percent from November. Foreign reserves increased delivery times due to congestion in roads and ports, reached an all-time high of US$87.9 billion in December, due may temper the recovery in manufacturing output. to higher net foreign currency deposits and higher central Total external trade in goods contracted in November 2019. bank’s income from its investment abroad. The reserves can Merchandise imports contracted by 8.0 percent yoy in cover 7.7 months’ worth of import at its current level, higher November, a sharp reversal from the 9.6 percent expansion in than the 7.5 months’ coverage in November. Meanwhile, the November 2018. This was led by the 14.6 percent decline in PSEi increased by 1.0 percent month-on-month in December, raw materials and intermediate goods purchases, which closing at 7,815 from 7,739 in November. accounted for 36.2 percent of imports, despite the imports of Inflation climbed in December 2019, yet full-year inflation capital and consumer goods growing by 1.6 percent and 10.2 settled within target. Headline inflation accelerated to 2.5 percent, respectively. Meanwhile, merchandise exports percent yoy in December from 1.3 percent in November, albeit Figure 1: Manufacturing output fell for the twelfth Figure 2: The Philippine peso appreciated in December. consecutive month in November 2019. 30.0 VoPI 84.6 VaPI 25.0 Average Capacity Utilization Rate Capacity Utilization (in percentage) 84.4 20.0 15.0 84.2 10.0 84 In percentage 5.0 0.0 83.8 -5.0 83.6 -10.0 -15.0 83.4 Jan-19 Mar-19 Jul-19 May-19 Sep-19 Nov-18 Nov-19 Source: Philippine Statistics Authority (PSA) Source: Bangko Sentral ng Pilipinas (BSP) PHILIPPINES Monthly Economic Developments | January 2020 slower than the 5.1 percent in December 2018. Greater government continues to implement its catch-up spending demand during the holiday season and tight supply conditions program to close out the year. The surge in public spending due to weather disturbances drove food prices up, particularly was fueled by national government disbursements on fish and vegetables. The price of rice continued to decline but infrastructure payments, personnel services, and maintenance at a much slower pace than in the past three months. Further and operating expenses, which expanded by 28.5 percent. increases in the price of alcoholic beverages and tobacco Meanwhile, public revenue growth expanded by 17.3 percent products and hiked transport prices due to higher yoy in nominal terms in November, compared to 6.7 percent a international price of oil contributed to the price pressure. The year ago, driven by strong growth in tax collections. The 2019 full-year average inflation stood at 2.5 percent, settling Bureau of Internal Revenue (BIR), which accounted for around within the BSP’s 2-4 percent target range. Core inflation also 80 percent of total tax collections, drove tax revenue growth, increased to 3.1 percent, yoy, in December from 2.6 percent in as collections by the BIR grew by 20.8 percent yoy in nominal November. Full-year average core inflation rate stood at 3.3 terms – posting its strongest performance thus far in 2019. percent in 2019, lower than 4.1 percent reached in 2018. Overall, the government posted a wider budget deficit of Php60.9 billion in November, or nearly 60 percent greater than Domestic liquidity and bank lending expanded in November the Php39.1 billion deficit posted a year ago. 2019. Domestic liquidity (M3) expanded by 9.8 percent yoy to about Php12.4 trillion in November, faster than the 8.5 The 2020 national government budget was signed into law on percent growth in October. Demand for credit remained the January 6. The Php4.1 trillion budget represents an increase of driver of money supply growth. Domestic claims grew due 11.8 percent yoy in nominal terms compared to the FY 2019 mainly to the sustained growth in credit to the private sector. budget. The FY 2020 budget remains consistent with the Outstanding loans of universal and commercial banks, net of priorities under the Duterte administration which focuses reverse repurchase, grew by 10.1 percent yoy. Loans for spending on social services and infrastructure investment. production activities expanded at a rate of 8.1 percent in Spending in social services accounts for the largest share of the November, driven primarily by lending to the following budget, accounting for 36.5 percent of the budget (Php1.495 sectors: real estate activities; financial and insurance activities; trillion). In particular spending on education, health, and social and construction. Meanwhile, loans for household welfare account for 24.2 percent of the 2020 budget, with consumption grew by 26.6 percent in November from 26.7 education accounting for the largest share at 16.0 percent. percent in October due to faster growth in motor vehicle loans Meanwhile, investment in physical infrastructure likewise during the month. received a substantial increase, as both the Department of Public Works and Highways and Department of Transportation The national government deficit widened in November 2019 saw budgets increase by 25 percent and 45 percent, as public spending accelerated by over 20 percent. Public respectively, accounting for a total of 16.6 percent of the 2020 spending growth accelerated to 22.4 percent yoy in nominal budget. terms in November from 18.5 percent a year ago, as the Figure 3: Inflation rose further in December. Figure 4: The government posted a wider fiscal deficit in November as spending accelerated. 12 Core Inflation Headline Inflation 10 Food & Non-alcoholic beverage BSP Key policy rate 8 6 Percent 4 2 0 Feb-17 Feb-18 Feb-19 Dec-16 Dec-17 Dec-18 Dec-19 Apr-17 Aug-17 Apr-18 Aug-18 Apr-19 Aug-19 Jun-17 Jun-18 Jun-19 Oct-17 Oct-18 Oct-19 -2 Source: PSA Source: Bureau of the Treasury PHILIPPINES Monthly Economic Developments | January 2020 Developments to Watch  Manufacturing output: will the manufacturing sector revert to expansion in 2020?  Public expenditure: will the spending pick up through the holiday season?  Inflation: will inflation continue to rise in the coming months? Selected Economic and Financial Indicators 2017 2018 Q1 2019 Q2 2019 Q3 2019 Oct-19 Nov-19 Dec-19 Real GDP growth, at constant market prices 6.7 6.2 5.6 5.5 6.2 Private consumption 5.9 5.6 6.1 5.5 5.9 Government consumption 7.0 12.8 7.4 7.3 9.6 Capital formation 9.4 13.7 8.0 -8.5 -2.1 Exports, goods and services 19.5 11.5 5.7 4.8 0.2 Imports, goods and services 18.1 14.5 8.6 -0.1 0.0 Industry Performance Value of Production Index -1.4 8.0 -3.7 -7.5 -5.8 -4.3 -5.8 Volume of Production Index -0.5 7.2 -7.4 -10.2 -7.0 -4.0 -6.1 Capacity Utilization 83.8 84.2 84.3 84.3 84.3 84.5 84.5 Nikkei Philippines Purchasing Managers' Index 53.2 52.5 51.9 51.1 51.9 52.1 51.4 Monetary and Banking sector Headline Consumer Price Index 2.9 5.2 3.8 3.0 1.7 0.8 1.3 2.5 Core Consumer Price Index 2.5 4.1 3.6 3.4 2.9 2.6 2.6 3.1 Domestic liquidity (M3) 13.3 11.6 7.1 6.6 6.9 8.5 9.8 Credit growth (universal and commercial banks) 18.8 15.7 13.0 10.3 10.4 9.0 9.6 Business loans 18.6 15.8 12.8 9.8 9.0 7.5 8.1 Consumer loans 20.8 13.6 15.1 15.3 26.2 26.7 26.6 Fiscal sector 100 In billions Php Fiscal balance (% of GDP) -2.2 -3.2 -2.1 1.0 -5.8 -49.3 -60.9 Total Revenue (% of GDP) 15.7 16.4 16.3 18.6 17.3 261.6 304.7 Tax Revenue (% of GDP) 14.2 14.7 14.6 16.5 15.8 237.5 284.6 Total Expenditure (% of GDP) 17.9 19.6 18.5 17.6 23.1 310.8 365.6 National government debt (% of GDP) 42.1 41.9 44.0 43.7 43.3 7,906 7,195 Stock market PSEi (month-end value) 8,558 7,466 7,921 7,974 7,779 7,977 7,739 7,815 External accounts Current account balance (% of GDP) -0.7 -2.4 -2.0 -0.2 Exports of merchandise goods (growth rate) 18.4 -0.3 -3.1 1.2 0.5 0.1 -0.7 Imports of merchandise goods (growth rate) 13.6 9.4 4.7 -5.9 -8.6 -10.8 -8 Net foreign direct investment (in million US$) 10,057 9,802 1,933 1,653 1,533 Balance of payment (% of GDP) -0.3 -0.7 4.7 1.1 International reserves (in million US$) 81,273 78,140 83,613 84,722 85,623 85,702 86,393 87,855 Import cover 8.4 7.1 7.4 7.4 7.5 7.5 7.5 7.7 Nominal exchange rate 50.40 52.68 52.36 52.06 51.7 51.5 50.7 50.8 Labor Market Unemployment rate 5.7 5.3 5.2 5.1 5.4 4.5 Underemployment rate 16.2 16.4 15.6 13.5 13.9 13.0 Sentiments Consumer confidence index (end of period) 9.5 -22.5 -0.5 -1.3 4.6 Business confidence index (end of period) 43.3 27.2 35.2 40.5 37.3 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, Jiyoung Song and Isaku Endo, under the guidance of NdiamePHILIPPINES Diop. Monthly Economic Developments | January 2020 Contact Rong Qian (rqian@worldbank.org) for questions.