Quo Vadis Philippines

8/14/2019 Quo Vadis Philippines

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Quo Vadis, Philippines?

UP Alumni AssociationCagayan de Oro

May 21,2009


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Outline

I. Economic Performance

II. Prospects


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Economic Performance

Silver Linings: The Big Picture Were no longer the basket case of Asia

Weve been growing at a faster pace over alonger period of time than any other period in thepast 22 years:

Aquino (1986-1992): 4.0%

Ramos (1992-1998): 3.8% Estrada (1998-2000): 2.9%

Arroyo (2001-2008): 5.4%


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Some more silver linings

Employment increased by 565,000between Jan 2008 and Jan 2009

Underemployment decreased (18.9% to18.2%)

Percentage of wage and salaried

workers increased (51.7% to 52.3%)


5/26

Still more

Inflation in 2008 remained at single-digit level(9.3%) despite spikes in world fuel and rice

prices -- headline inflation decreased by 450basis points between August and December.Feb, March, April inflation 7.3%, 6.4%, 4.8%

Gross Official Reserves reserves are at a

healthy 5.9 months of imports ($30.3b)as ofFebruary. (End April: $39.5nb)


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and still some more..

National government deficit (0.9% -

1.2% of GDP) very manageable (nowexpected to go up to 3.1% by private

Current Account surplus maintained

OFW deployment and remittances arestill increasing (latest figures February)


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and still some more

Jan-Feb OFW remittances at $2.6billion, 2.5% more than a year ago

(BSP) Jan-Feb OFW deployment 27.3%

higher than same period last year --

283,348 vs 222,608


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What this all means is:

The Philippines is facing the globaleconomic crisis from a much better

macroeconomic position than it did inprevious downturns (1998, 1991, 1983-85)

Bonus: banking sector resilient,robust. No credit crunch.


9/26

Here comes the bad news:

(the list is long)The economy suffered a steep decline in itsgrowth rate in 2008 (from 7.2% to 4.6%) andfurther decline is already visible from thelatest economic indicators

Agriculture and Service sectorunderperformed in 2008; in 2009, it lookslike the Manufacturing subsector is going tobe the hardest hit: Average capacityutilization in January 2009 is 77.5 (50% ofindustries have capacity utilization of 80%and above)


10/26

Bad News

Unemployment rate increased (7.4% to7.7%),and there is potential for further

weakening of the situation. Imports, exports, are sharply down since

October, and remittances have alsodecelerated sharply since October.

Jan 2009 exports down 41% (electronicsexports -48.4%), imports down 34%


11/26

Bad news.

Portfolio investments for the year showed anet outflow of $1.4 b (from a net inflow of$3.1b in 2007)

FDI negligible ($1b)

tax and revenue effort declining

Production costs remain high, squeezing

corporate profits-- WPI and PPI continue tobe high (20.6% and 8.5% respectively as ofend of last year)


12/26

Some more bad news

Public sector-, national government-debt, and external debt- to-GDP ratios,

which had been declining considerably(rapid pace of debt reduction), are nowexpected to increase for 2009.


13/26

Bad News: In the War against

Povery, Poverty is winningPoverty Incidence, by administration

Marcos 36.5%Aquino 30.1

Ramos 20.5

Estrada 22.3

Arroyo 22.1


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What all this means:

While the Philippines is in better shapethan ever before to face a global

downturn, there is no escaping the factthat it will be affected, due to itsopenness and lack of diversity (exports

to GDP ratio has dropped from 50% to34%, but electronics accounts for 60%of total exports).


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Aggravating Factor:

Stimulus package of government is toosmall, too vague, and no plans to monitor Too Vague:

Government estimate: P300 billion (3.75% of GDP)

Salceda estimate: P7 B (0.08%)

Legislative plan: P50 B (0.62%)

Based on increase in budget deficit (from original plan):P76.2B (0.95%)

Not clear where the money will go

No provisions for special monitoring (chances of wastagegreat, particularly in a pre-election year)


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Stimulus -- or lack of it

Too Small:-- Comparing stimulus packages:

Singapore: 5% of GDP

US: 6%Malaysia: 8% (Note: This is 2nd round)

China: 18% ($586 B)


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II. Prospects

Global Prospects: Dim IMF has adjusted its forecasts of world economic

outlook downward four times in a row. WB predicts recession in 2009 for US (-0.5%) andthe Eurozone (-0.6%), with Japan expected togrow at 0.1%

World trade, which grew by 5.9% last year, ispredicted to contract by 2.1% this year.


18/26

Prospects

Philippine Prospects: Dimming Various Projections

Credit-rating agencies -- 2% IMF -- 2.25%

WB -- 3.0%

Citigroup -- 3%

DB -- 2.0% (down from 3.3% in January)

IDEA -- 3.4% - 4.1%

PIDS -- 4%

NEDA -- maximum 4%


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Prospects

A little bit of history: Seven times in thelast 25 years, GDP growth rates were

less than 2%. 1983 1.87 1991 (0.58)

1984 (7.32) 1992 0.34

1985 (7.32) 1998 (0.58)2001 1.76


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Prospects A little bit of comparison: 2009 macroeconomic

projections for selected countries in Emerging Asia

Forecasted 2009 Real GDP growth rates (%)China 7.0 7.0 7.5

Hongkong -4.0 -5.0 -5.0Indonesia 4.5 4.0 4.0

Malaysia 3.0 0 0.0

Philippines 3.2 2.0 2.0

Singapore -4.5 -5.0 -9.0Thailand 1.5 -2.5 -6.0

Emerging Asia excluding

China and India 0.8 -2.5 -2.1


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Prospects

Forecasted 2009 Fiscal Balance (% of GDP)

China (2.0) (3.0)

Hongkong (7.4) (5.0)Indonesia (1.7) (1.7)

Malaysia (4.5) (7.4)

Philippines (1.7) (2.2) (3.1)Singapore 3.3 2.1

Thailand (4.3) (4.0)


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Prospects

Other projections for the Philippines

Foreign exchange rate (P/$) 45 - 47

Interest rate 4-6% Inflation rate 4-4.4%

Unemployment rate 6.8-7.0%


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Summary

Growth expected to slow considerably given lower export demand from developed countries,

lower private consumption due to declining realincome and higher unemployment

lackluster investment due to risk aversion, highcosts of financing, and reduced growth prospects

Ineffectiveness of government intervention


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Portent of things to come?

10 of the 11 leading economicindicators (LEI) for the first quarter of

2009 have have turned negative. (1) consumer price index, (2) electric energyconsumption; (3) exchange rate, 4) hoteloccupancy rate, 5) money supply; 6) number ofnew business incorporations, 7) stock priceindex, 8) terms of trade index, 9) totalmerchandise imports, 10) tourist arrivals, and11) wholesale price index.


25/26

Portent of Things to Come

What could reverse the prognosis? (a)If the stimulus packages of other

countries are effective. (b) if ourstimulus package is large enough andeffective.


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Last Comforting Statement:

Remember: The Philippine economy isslowing down. But it has not as yet

contracted. Slowdown vs recession.

THANK YOU

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