Philippines Monthly Economic Developments December 2018 Manufacturing production has gained momentum since the start of the year, registering strong growth for the first six months, a • The Philippines registered its widest merchandise trade deficit in October as imports continued its strong expansion and export growth remains subdued. • The headline inflation rate eased from 6.7 percent year-on-year in October to 6.0 percent in November. • Labor market remains tight in October while underemployment improved. The Philippines registered its widest merchandise trade both the inflow of remittances due to the holidays and capital deficit in October as imports continued its strong expansion inflows due to improved economic prospects as a result of and export growth remains subdued. Import growth moderating inflation, declining world oil prices, and the central accelerated to 21.4 percent year-on-year in October from 17.4 bank’s proactive policy response. Nevertheless, the peso still percent a year ago, although slightly less than the 26.1 percent depreciated by 4.3 percent year-on-year in November. Gross growth in September. Faster import growth was fueled by international reserves decreased from US$80.3 billion (7.8 robust import growth in raw materials and intermediate goods months’ worth of imports) in November 2017 to US$75.5 (22.2 percent) and capital goods (21.2 percent). Meanwhile, billion (6.9 months’ worth of imports) in November 2018. merchandise export growth moderated to 3.3 percent year- The 12-month headline inflation rate eased from 6.7 percent on-year in October from 17.4 percent a year ago, slightly year-on-year in October to 6.0 percent in November. Food higher than the 0.8 percent growth in September. Softer inflation moderated for the second consecutive month, from export growth was primarily driven by the sharp growth 9.4 percent in October to 8.0 percent in November, as inflation slowdown in electronics products (0.6 percent in October 2018 in the price of key commodities such as rice, corn, meat, and vs 28.6 in October 2017), and the contraction of agriculture fish eased. In addition, a rapid decline in international crude oil exports (-13.7 percent in October 2018 vs 16.1 percent in prices throughout November led to a slower rise in the price October 2017). As a result, the Philippines’ merchandise trade of electricity, gas, and other fuels in November (4.2 percent) deficit widened to its largest level so far in 2018 at US$4.2 compared to October (8.1 percent). Yet, core inflation billion, which is 62.9 percent higher than the merchandise increased from 4.9 percent in October to 5.1 percent in trade deficit during the same period a year ago. November, as inflation accelerated in other categories such as The Philippine peso sustained its month-on-month clothing and footwear, furnishing, health, recreation and appreciation in November. In November, the Philippine peso culture, and restaurant and miscellaneous goods and services. closed at Php/US$52.61 and registered a higher month-on- Manufacturing activities expanded at a slower pace in month appreciation at 1.9 percent compared to 1.2 percent in October. The growth of the volume of production index (VoPI) October. The sustained strength of the peso was driven by has steadily declined since April 2018, dropping to 3.9 percent Figure 1: The Philippine peso sustained its strength in Figure 2: Headline inflation moderated in November but remains November. high. Source: Bangko Sentral ng Pilipinas (BSP) Source: Philippine Statistics Authority (PSA) PHILIPPINES Monthly Economic Developments | December 2018 year-on-year in October 2018, similar to September’s growth Labor market remains tight in October while rate. Textiles, petroleum products, and miscellaneous underemployment improved. The unemployment rate manufactures were among the major industry groups that marginally rose from 5.0 percent in October 2017 to 5.4 experienced the highest double-digit growth rates, whereas percent in July 2018, before falling to 5.1 percent in October growth contracted in food manufacturing and fabricated metal 2018. A total of 0.2 million net job losses were registered in production. Meanwhile, the Nikkei Philippines Manufacturing October, driven by a loss of 0.4 million and 0.2 million jobs in Purchasing Manager’s Index (PMI) increased from 54.0 in the agriculture and services sectors, respectively. These job October to 54.2 in November, driven by strong output and new losses were partially offset by an increase of 0.4 million net orders despite a sharp fall in export orders. Average capacity new jobs in industry, particularly in construction. Meanwhile, utilization reached 84.3 in October, with more than half of the the underemployment rate increased from 15.9 percent in country’s twenty largest industries operating with at least 80 October 2017 to 17.2 percent in July 2018, before falling to percent capacity utilization rates. 13.3 percent in October 2018—the lowest level since 2006. However, the lower unemployment rate may be partly driven The government registered a fiscal deficit in October, as rapid by fewer people entering the job market, as the labor force expenditure growth continued to outpace revenue growth. participation rate declined from 62.1 percent in October 2017 National government expenditure increased by 35.2 percent to 60.6 percent in October 2018. year-on-year in nominal terms in October 2018, higher than the 28.2 percent growth in October 2017 and 26.0 percent in Consumers turned more pessimistic for the second September 2018. Meanwhile, public revenue growth consecutive quarter while business confidence reached its accelerated by 20.3 percent year-on-year in nominal terms in lowest level in nearly a decade. The consumer confidence October 2018—slightly higher than the 17.4 percent growth index dropped from 9.5 percent in Q4 2017 to -7.1 percent in registered in October 2017 and significantly higher than the Q3 2018 and -22.5 percent in Q4 2018—its lowest level since 1.1 percent growth recorded in September 2018. Robust Q3 2014. The pessimistic consumer outlook stems mainly from revenue growth was driven by strong growth in tax revenue, persistent high inflation combined with a lack of increases in which expanded by 19.2 percent year-on-year in nominal household incomes. Similarly, the business confidence index terms in October 2018, higher than the 18.5 percent in fell from 43.3 percent in Q4 2017 to 30.1 percent in Q3 2018 October 2017 and rebounding from the flat growth registered and 27.2 percent in Q4 2018—its lowest level since Q4 2009. in September 2018. As a result, the national government Weaker business sentiment was attributed to higher inflation, posted a fiscal deficit of Php59.5 billion in October, which was the weakening peso, higher borrowing costs, a decline in the more than twice the Php21.8 billion deficit registered in volume of sales, and lack of supply of raw materials. October 2017 but substantially lower than the Php96.2 billion deficit reached in September. Figure 3: Unemployment slightly worsened while Figure 4: Both consumer and business confidence fell for the underemployment improved in October. second consecutive quarter. Source: PSA Source: BSP PHILIPPINES Monthly Economic Developments | December 2018 Selected Economic and Financial Indicators 2016 2017 Q1 2018 Q2 2018 Q3 2018 Sep-18 Oct-18 Nov-18 Real GDP growth, at constant market prices 6.9 6.7 6.6 6.2 6.1 Private consumption 7.2 5.9 5.7 5.9 5.2 Government consumption 8.8 7.1 13.6 11.9 14.3 Gross fixed capital investment 26.6 9.5 8.8 21.2 16.5 Exports, goods and services 11.7 19.6 6.5 12.6 14.3 Imports, goods and services 20.5 18.2 9.6 18.5 18.9 Industry Performance Value of Production Index 6.2 -0.7 17.8 24.0 8.2 3.7 3.1 Volume of Production Index 11.5 0.3 18.7 23.0 8.2 4.0 3.9 Capacity Utilization 83.5 83.8 84.2 84.3 84.2 84.2 84.3 Nikkei ASEAN Purchasing Managers' Index 53.2 51.3 53.1 51.6 52.0 54.0 54.2 Monetary and Banking sector Headline Consumer Price Index 1.3 2.9 3.8 4.8 6.3 6.7 6.7 6.0 Core Consumer Price Index 1.5 2.5 3.0 3.8 4.7 4.7 4.9 5.1 Domestic liquidity (M3) 12.5 13.3 13.7 13.4 10.3 9.7 8.0 Credit growth 16.6 17.8 17.2 17.9 16.7 16.1 16.8 Business loans 13.5 17.4 17.0 18.1 17.2 16.3 17.4 Consumer loans 20.5 20.5 19.1 16.5 13.3 14.4 12.0 Fiscal sector (In billions Php) Fiscal balance (% of GDP) -2.4 -2.2 -3.9 -0.9 -4.4 -96.2 -59.9 Total Revenue (% of GDP) 15.2 15.7 15.8 18.2 16.6 202 246.8 Tax Revenue (% of GDP) 13.7 14.2 14.3 16.1 15.2 183 222.2 Total Expenditure (% of GDP) 17.6 17.9 19.7 19.2 21.0 299 306.6 National government debt (% of GDP) 42.1 42.1 42.6 42.5 42.3 7,160 7,167 Stock market PSEi (month-end value) 6,841 8,558 7,980 7,194 7,277 7,277 7,140 7,368 External accounts Current account balance (% of GDP) -0.4 -0.7 -0.2 -3.6 Exports of merchandise goods (growth rate) -2.5 18.4 -5.4 -1.3 2.5 0.8 3.3 Imports of merchandise goods (growth rate) 18.4 13.6 7.2 20.0 19.5 26.1 21.4 Net foreign direct investment (in million US$) 8,279 10,057 2,227 3,528 Balance of payment (% of GDP) -0.1 -0.3 -1.6 -2.5 International reserves (in million US$) 83,515 81,273 80,722 78,779 76,531 74,939 74,772 Import cover 9.7 8.4 7.6 7.2 7.0 6.8 6.8 Nominal exchange rate 47.49 50.40 51.45 52.45 53.54 53.94 54.00 Labor Market Unemployment rate 5.5 5.7 5.3 5.5 5.4 5.1 Underemployment rate 18.4 16.2 18 17 17.2 13.3 Sentiments Consumer confidence index (end of period) 9.2 9.5 1.7 3.8 -7.1 -22.5 Business confidence index (end of period) 39.8 43.3 39.5 39.3 30.1 27.2 Prepared by a World Bank team consisting of Rong Qian, Kevin Chua, Kevin Thomas Cruz, Karen Lazaro, and Isaku Endo, under the guidance of Ndiame Diop. PHILIPPINES Monthly Economic Developments | December 2018 Contact Rong Qian (rqian@worldbank.org) for questions.