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Latest Economic Developments:

Growth, Foreign Trade, Fiscal Performance
and Employment

Financial Markets:
Inflation, Foreign Direct Investments,
Foreign Portfolio Investments, Balance of Payments,
Remittances, and Gross International Reserves

Economic Reports:
BSP Expectations Survey


Amidst the uncertainty surrounding the government’s tax packages, there are several things to
look forward to for the rest of the year. The economy is expected to sustain its growth
momentum on the back of faster private capital spending, stronger exports performance,
recovery in the manufacturing sector, and increased tourism. Of course, the implementation
of several flagship infrastructure projects, which will be rolled out in full steam in the
next quarters, will be a key growth driver. Foreign direct investments will likewise
sustain its expansion this year, after reaching a record-high in President Duterte’s
first full year in office. Inflationary pressures, however, will temper economic
growth, as consumers will feel the squeeze in their incomes.

picture credit: business.inquirer.net


Economic Growth

The economy grew by 6.6% in the final quarter of 2017—slightly below the expanded at a slower pace, indicating the need for the sector to shift towards higher-
median market expectation of 6.7%—to close the year at 6.7%. This puts the country value services. Domestic demand also expanded, alongside fixed investments
as one the fastest-growing economies in the region for 2017, after China’s 6.9% and growth, indicating continued consumer and business optimism. Public construction
Vietnam’s 6.8%. However, the 2017 Gross Domestic Product (GDP) figure is lower also expanded during this period, offsetting the slowdown in private construction
than the 6.9% registered in 2016, as all growth drivers expanded at a slower pace due to the onset of the holiday season. Despite improvements in public spending,
except for merchandise exports. the government still suffers from project implementation delays.

On the demand-side, faster government spending, as well as continued On the supply-side, industry expanded the fastest, followed by services, for the
merchandise exports expansion, supported growth in the fourth quarter of fourth quarter of 2017. The agriculture sector grew by 2.4% in the final quarter of 2017.
2017. However, services exports, particularly business process outsourcing (BPO), Outlook for the sector remains positive, especially with expectations of strong rice

Figure 1. GDP Growth Rates in Selected Asian Countries Figure 2. Demand-side Contribution to GDP
(PHP Million)

Source: Bangko Sentral ng Pilipinas Source: Philippine Statistics Authority


and corn production in 2018. The government, however,
has yet to lift quantitative restriction on rice imports.
The country’s economic managers are proposing for
Figure 3. Supply-side Contribution to GDP
(PHP Million)
a shift from quantitative restriction to rice tariffication.
The government will reportedly be able to convert its
quantitative restriction on rice into tariffs by June 2018,
a year after the World Trade Organization waiver on
the special treatment of rice has lapsed. Lawmakers are
already fast-tracking the amendments to the Agricultural
Tariffication Act (RA 8178).

Data from the Purchasing Manager’s Index reveal that

the improving index level towards the end of 2017 show
robust health in the manufacturing sector, driven by
Source: Philippine Statistics Authority
domestic demand. Alongside Vietnam, the Philippines
registered the fastest expansion in manufacturing.
However, in February 2018, manufacturing growth
slowed down to its second-lowest level since January
2016 due to higher input prices and job losses, which, Figure 4. Purchasing Managers’ Index
in turn, can be partly attributed to increased excise taxes
on several goods under the Tax Reform for Acceleration
(TRAIN) law. The manufacturing performance for the first
quarter of 2018 is also expected to be one of the weakest
quarters in the survey’s history.

For 2018, the World Bank and the Asian Development

Bank projects the GDP to grow by 6.7% and 6.8%
respectively, supported by the rollout of infrastructure
programs and the implementation of the first package
of the tax reform program. The government, however, is
targeting a more aggressive expansion of 7% to 8% this Source: IHS Marikit
year. Key growth drivers for 2018 include private capital
spending, exports, manufacturing, and tourism.


Figure 5. Philippine Exports
(USD Million)

Source: Philippine Statistics Authority

Foreign Trade in 2017. Other notable exports include machinery and transport equipment, which
grew by 23%, and cathodes and ignition wiring sets used in vehicles, which expanded
The balance of trade continued to widen in 2017, as imports outpaced exports. The by 914.4%. Exports of agro-based products also performed well, growing by 6.8%
trade deficit amounted to USD 29,911 million in 2017, higher than the USD 25,145 year on year. Coconut oil, the top agricultural export, grew by 26.8%.
million recorded in 2016.
Exports to Japan, our largest market, contracted by 12.7% in 2017. This contraction
Despite this, exports were a bright spot in 2017—growing by 9.5% in 2017— was tempered by increased exports to other key markets such as Hong Kong, growing
rebounding from the contraction in 2016. Exports amounted to USD 62.9 billion in by 30.6%, US by 3.5%, China by 8.4%, Germany by 12.3%, Korea by 15.2%, and the
2017. The strong exports performance, however, was tempered by weaker demand Netherlands by 40.5%.
from key markets towards the end of the year. Electronic products, which account
for over half of exports, continued its expansion, growing by 11.2% year on year. Although exports growth rose marginally in January 2018, by only 0.5% (due to
Semiconductors, which make up the bulk of electronic exports, also grew by 12.2% sluggish non-electric and agro-based commodity sales), exports performance is still


Figure 6. Philippine Imports
(USD Million)

Source: Philippine Statistics Authority

Figure 7. Top 10 Trading Partners in 2017

(USD Million)

Source: Philippine Statistics Authority

expected to remain strong this year, following initiatives such as the ASEAN Seamless total imports, expanded by 4.6%. Most top imports including telecommunications
Trade Facilitation Indicators, which is expected to reduce trade transaction costs by equipment (up by 7.8%) iron and steel (up by 22.6%), transport equipment (up by
10% by 2020; and the ASEAN Hong Kong Free Trade Agreement signed last November 8.6%), and metalliferous ores (up by 363.8%) also expanded. Imports also continued
2017, which will further boost trade within the region. In March 2018, the free trade its growth at the start of 2018, expanding by 11.4%, supported by the strong growth
agreement (FTA) between the Philippines and the European Free Trade Association of raw materials and intermediate goods as well as capital goods.
(EFTA) states, composed of Iceland, Liechtenstein, Norway, and Switzerland, was
ratified. The FTA with EFTA countries is expected to help Philippine exporters gain a China remains as the Philippines’ top source of imports, with imports receipts
foothold in the European market. growing by 8.1% in 2017, followed by Japan, with imports expanding by 6.8%, South
Korea by 45% and Indonesia by 36.8%.
Imports continued its expansion in 2017, amounting to USD 92.7 billion—a growth
of 10.2%. Imports receipts from electronic products, which account for a quarter of The government targets exports to grow by 8% and imports to grow by 9% in 2018.


Table 1. Labor Force Survey Results

Source: Philippine Statistics Authority

Employment signifying the high unemployment among the youth. Unemployment for the 25-
34 age group, in particular, inched higher by 1.5 percentage points year on year.
The labor force participation rate increased to 62.2% in January 2018, 1.5% higher However, the underemployment rate, or the share of the labor force that is looking
compared to the same period in 2017. The unemployment rate decreased to 5.3% for better jobs, has gone up to 18.1%, after reaching its lowest figure in over a decade
in January 2018, from 6.6% in 2017. This translates to around 2.3 million unemployed last October 2017. The services sector, where over half of those in the labor force are
Filipinos. Among those who are unemployed, 74.3% belong to the 15-34 age group, employed, also has the highest proportion of underemployed persons at 44.6%,


Figure 8. Fiscal Balance
(PHP Billion)

Source: Bureau of Treasury

Fiscal Performance Despite a 13% growth in its revenue collections year on year, the Bureau of Internal
Revenue (BIR) narrowly fell short of its PhP 1.83 trillion target by PhP 6 billion, collecting
The budget deficit for 2017 amounted to PhP 350.6 billion, as public expenditures PhP 1.77 trillion for 2017. The PhP 30 billion tax settlement with Mighty Corp., the
surged ahead of revenue collections. Revenue collections totaled PhP 2,473 billion, largest in the country’s history, provided a boost to revenue collections. While the
expanding by 13%, while expenditures reached PhP 2,824 billion, increasing by 11% target collection figure was missed, this the agency’s highest collection growth rate
during the same period. The deficit, however, has slightly narrowed compared to and tax effort ratio in the last five years. The BIR has also exceeded its target for the
2016. first two months of 2018, recording collections of PhP 280.6 billion during this period.

Figure 9. National Government Disbursement Performance

(PHP Billion)

Source: Department of Budget and Management


The higher collections can be attributed to increased
excise taxes from the TRAIN law. Figure 10. Infrastructure and Capital Outlay Disbursements
(PHP Billion)
The Bureau of Customs (BOC), which has been
under the leadership of Isidro Lapeña since September
2017, has reached record-high collections after the
commissioner took office. Monthly collections since
then have also averaged at PhP 40 billion, a marked
improvement from the PhP 35 billion collected
monthly before Lapeña’s term. While this is a remarkable
progress, collections for 2017 amounted to PhP 457.6
billion, failing to reach its revised full-year goal of PhP
459.6 billion. After missing its revenue collection target
for January 2018, the BOC was able to exceed its target
by PhP 2 billion in February. The agency has intensified
its efforts to crack down on smuggled goods and has
pursued efforts to improve the performance of its
district collectors. The BOC has raised its 2018 target by
30% to PhP 598 billion.
Source: Department of Budget and Management
Meanwhile, underspending continues to be a
lingering problem, although the shortfall from the In 2017, infrastructure to GDP spending reached The government has announced that flagship
programmed budget has narrowed compared to the 3.6%, much higher than the average spending of infrastructure projects will be rolled out in full steam this
previous years. After reaching its targeted budget for 2.4% from 2010 to 2016. However, this is still below year, following the enactment of the first tax package.
the first half of the year, the government has not been the government’s spending target of 5.4%. While According to government pronouncements, around
able to meet the backloaded spending targets in the total disbursements failed to reach its targets in 2017, 44 public infrastructure projects totaling PhP 1 trillion
second half of 2017. Nevertheless, spending increased infrastructure spending exceeded its target by PhP 19.4 are already under construction, and another 15 projects
by 11% in 2017. The faster disbursements can be billion. Endemic bureaucratic challenges, including are expected to be implemented in 2018. In addition
attributed to the government’s infrastructure program, overlapping bureaucracies and mandates, right-of-way to these big-ticket projects, the government is also set
subsidies to government corporations, which used issues, lack of skills for government agencies, and skilled to roll out smaller infrastructure projects included in the
these for housing and irrigation projects, and the labor shortage in the construction industry, have yet to Three-year Rolling Infrastructure Program, which have a
National Health Insurance Program. be resolved. target completion year of 2020.


Financial Markets

Foreign Direct Investments

Foreign Direct Investments (FDI) recorded an all-time high in President Duterte’s first amounted to USD 28.8 million, or less than 1% of the total, a paltry figure compared to
full year in office, reaching USD 10 billion in 2017 and surpassing the government’s USD 1,573 million from the Netherlands or even the USD 683 million from Singapore.
USD 8 billion target. FDI inflows grew by 21.4% from its 2016 figures. The 2017 figures Last year, Japanese investments also dropped significantly to only USD 56 million,
came on the heels of the widely circulated US News & World Report, which cited the after a surge in investments (USD 1 billion) in 2016.
Philippines as one of the top countries to invest in, even outranking our neighbors
such as Indonesia, Malaysia, and Singapore. The Philippines has come a long way from being a laggard in FDI inflows, slowly
overtaking some of our neighbors in the region such as Malaysia and Thailand.
The central bank attributes the strong FDI performance to the country’s sound Despite this progress, the country can still take advantage of some opportunities.
macroeconomic fundamentals and growth prospects. Top industries receiving For example, rising labor costs and an aging population in China have encouraged
FDI include manufacturing, gas, steam and air-conditioning supply, real estate, several firms to relocate their operations in other Southeast Asian countries. Vietnam
construction, wholesale and retail trade. However, over a third of the equity capital has benefited greatly from manufacturers looking for a low-cost alternative to China.
placements, or new FDI inflows, were directed into the manufacturing sector, Although the full-year FDI data for Vietnam is still unavailable, the country has already
particularly in food, radio, television and communication equipment and apparatus, raked in over $10.1 billion for the first three quarters of 2017.
chemical and non-chemical products, fabricated metal products, and basic metal
and non-metallic mineral products. In contrast to the positive FDI performance, approved foreign investments, or
prospective investments from foreigners in Special Economic Zones, plunged by
Foreign investments in manufacturing grew by 244% in 2017, coming from a 51.8% in 2017, amounting to PhP 105.6 billion (USD 2 billion). Investment pledges
low base in 2016. In addition to strong domestic and external demand for locally in CALABARZON, which accounts for almost half of the total, dropped by 49%.
manufactured products, the surge in manufacturing investments can be partly Investment pledges in NCR also dropped by 54%, while that of Ilocos increased by
attributed to Japan Tobacco Inc.’s acquisition of Mighty Corp. in September 2017. In 67%.
2018, FDI in manufacturing is expected to grow by 10% to 15%.
By sector, manufacturing, which accounts for over half of total investments,
In terms of source country, the Netherlands topped the list, followed by Singapore, contracted by 43% in 2017. Prospective investments in real estate activities, however,
the US, and Hong Kong. So far, Duterte’s overtures towards China have yet to translate saw a huge 222% increase.
into a significant surge in FDI inflows. In 2017, equity placements from China only


Figure 11. Foreign Direct Investments
(USD Million)

Source: Department of Budget and Management

By country of origin, investments from Japan, which restrictions. The 11th Foreign Investment Negative List, One of the more immediate risks for the business
accounts for a little under a third of total investments, which the government committed to release some community is the upcoming tax package 2. The second
increased by 18%, year on year. Investment pledges time last year, is still pending the president’s approval. package proposes to lower corporate income tax
from Taiwan also grew by 574%. However, this was On the legislative side, the Ease of Doing Business bill, conditional on rationalizing fiscal incentives. Based on
tempered by a decline in investment commitments which seeks to cut red tape, is already in the advanced its assessment of the finance department’s proposal,
from Singapore (-58%), and the Netherlands (-81%). stages in Congress. The Senate is also deliberating on BMI Research cautioned that the second package will
the proposed amendments to the Public Service Act dampen the country’s competitiveness and create
President Duterte issued Memorandum Order 16 in to define “public utility” and open the sector to foreign uncertainties for investors.
November 2017, directing the National Economic and participation.
Development Authority to ease foreign investment


Foreign Portfolio Investments Inflation

In 2017, the country recorded an overall net outflow of USD 205 million, a reversal In January 2018, the country’s inflation rate rose to 4%. In February, inflation inched
of the net inflow of USD 404 million in 2016. These outflows can be attributed to both even higher at 4.5%, reaching its highest level in three years, and overshooting the
domestic and international developments such as increases in the interest rate in Bangko Sentral ng Pilipinas’ (BSP) target of 2-4%. While government officials and
the United States, mining company closures across the country, tensions between analysts had projected inflation to pick up, the pace of its increase was unexpected.
the US and North Korea, and US intervention in the Syrian civil war. The United States The BSP has revised inflation upward to 4.3% for 2018 from its original estimate of
remains to be the largest receiver of Philippine outflows, accounting for 80.2% of the 3.4%, citing the impacts of the TRAIN and higher global oil prices. The BSP, however,
total. maintains that rising inflation is transitory, and has so far resisted calls to raise interest
After posting net inflows of USD 162 million in January 2018, that may be attributed
to investor confidence on the implementation of the first tax package, positive news Overall food inflation, which accounts for over a third of Filipinos’ consumption
on corporate earnings, and expected high expenditure on infrastructure projects, basket, continued its increase, reaching 4.9% in February. Meanwhile, oil prices
portfolio investments in February 2018 yielded a net outflow of USD 545 million. registered an increase of 6.2% percent. On top of higher excise taxes, global oil
This may be attributed to possible interest rate hikes in the United States amidst prices have increased in the past year. The weakening peso has also made it costlier
inflationary pressures from the implementation of the US’ tax cuts. to import petroleum products. Some traders have also profited off the TRAIN. The
stocks of goods now affected by excise taxes are still in the warehouses of sellers

Figure 12. Foreign Portfolio Investments

(USD Million)

Source: Bangko Sentral ng Pilipinas


Table 2. Summary of Commodity Groups Directly Affected by TRAIN
and traders. This means that retailers, such as gasoline
stations and grocery stores, are still selling old stocks
of oil and beverages. However, they can only apply
excise taxes under the TRAIN on new stocks of goods.

For the bottom 30% of Filipino households,

inflation surged even higher to 4.8%. To cushion
the poor against higher prices, the government is
rolling out its unconditional cash transfer of PhP 200
per month in response to the TRAIN law, in addition
to the Pantawid Pamilyang Pilipino Program. The
government has already allocated PhP 25.67 billion
for unconditional cash transfers this year. Economic
managers are also pushing for a shift to rice tariffs Source: Philippine Statistics Authority and Department of Finance
instead of quantitative restrictions to ease the rice

Starting February 2018, the BSP has rebased

consumer prices to 2012, in accordance with the Figure 13. Inflation Rate
(2006 Base Year)
Philippine Statistics Authority Board Resolution
requiring the PSA to rebase price indices every 6
years. The weighting of price groups in the consumer
basket were adjusted to reflect the changing pattern
of consumption. Under the latest consumer price
index, food and non-alcoholic beverages index, as
well as the recreation and culture index, shed off the
biggest weights while health and restaurants and
miscellaneous goods received increased weights.
Using 2012 as the base year, inflation reached 3.9%
in February.

Source: Bangko Sentral ng Pilipinas



Despite several global political uncertainties in 2017, remittances continued to remain robust, with personal remittances reaching a record-high of USD 31.3 billion,
expanding by 5.3% year on year. The 5.3% expansion exceeded the central bank’s projection of 4% for 2017. Despite this, growth has generally expanded at a slower pace
compared to previous years. OFW remittance were supported by increased receipts from land-based workers with long-term contracts (up by 4.1%) and sea and land-
based workers with short-term contracts (up by 5.3%). Similarly, cash remittances, or inflows coursed through banks, reached USD 28.1 billion, expanding by 4.3%. Cash
remittances continued to remain strong in January 2018, amounting to USD 2.4 billion, a jump of 9.7%, as OFWs took advantage of the weaker peso. The strong remittances
inflows continue to support the country’s consumption-driven economy.

Remittances coming from the Middle East rose by 3.4%, specifically those coming from UAE, Qatar, and Bahrain. From Asia, especially those originating from Singapore,
Japan, and Taiwan, remittances rose by 7.3%. Remittances from the Americas rose by 5.8%, of which 5.5% can be attributed to increased receipts from the United States.
Despite the decrease in receipts from the United Kingdom, amidst the depreciation of the British Pound, remittances from Europe rose by 1.5%. The top countries that
contributed to the increase in total cash remittances include the US, UAE, Saudi Arabia, Singapore, Japan, United Kingdom, Qatar, Kuwait, Germany, and Hong Kong,
accounting for 80.1% of total cash remittances.

Figure 14. Overseas Filipinos’ Cash Remittance

(USD Million)

Source: Bangko Sentral ng Pilipinas


Figure 15. Gross International Reserves
(USD Million)

Source: Bangko Sentral ng Pilipinas

Gross International Reserves

Gross international reserves, which act as the economy’s buffer during external shocks, slid down to USD 80.6 billion as of February 2018, lower than the USD 81.2 billion
posted on January 2018. The decrease is mainly due to the outflows from BSP foreign exchange operations, payments for maturing obligations of the National Government,
and the revaluation of gold prices. Inflows from the national government’s net foreign currency deposits offset the outflows. The import cover has also been declining,
albeit much higher than the 3-month international standard. As of February 2018, it can only cover 8.2 months’ worth of imports of goods and payments of services and
primary income, compared to 8.7 months in the same period in 2017, and from a high of 11.6 months in 2011.


Figure 16. Balance of Payments Position
(USD Million)

Source: Bangko Sentral ng Pilipinas

Balance of Payments

The balance of payment position (BOP) in 2017 registered a deficit of USD 863 million, more than doubling its record in 2016 of USD 420 million. In 2017, the current account
deficit reached USD 2.5 billion compared to the deficit in 2016 of USD 1.2 billion. The deficit stemmed mainly from the widening trade-in-goods deficit, which saw imports
grow at a faster pace than exports. Meanwhile, trade-in-services recorded inflows of USD 9.5 billion in 2017, higher than the USD 7 billion recorded in 2016. The expansion was
supported by strong receipts in trade-related business services and computer services. BPO earnings in 2017 reached USD 22.1 billion, a growth of 9.6%. The financial account
also posted net inflows of USD 2.2 billion, as the surge in foreign direct investments, which reached a record-high USD 10 billion, more than offset the outflows of portfolio
investments. This was a reversal of the net outflows of USD 175 million in 2016. Reserves also continued to remain robust, reaching USD 81.6 billion at the end of 2017.

The same trend continued in the first two months of 2018, with the BOP deficit reaching USD 961 million. For 2018, the central bank expects deficit to reach USD 1 billion
due a projected trade deficit, as imports are expected to continue to grow to support the administration’s infrastructure buildup.


Figure 17. Business Expectations Survey

Source: Bangko Sentral ng Pilipinas

Expectations Survey

Business Expectations Survey

The overall business confidence for the first quarter of 2018 Q1 remained positive but less optimistic compared to the previous quarter. Reasons for the decreased
optimism involves the usual slowdown of economic activities and the moderation of consumer demand after the holiday season and harvest season, increase in fuel prices
brought by increasing world market prices and higher excise tax on petroleum, stiffer competition and consumer uncertainty on the impact of the TRAIN law on consumer
goods prices.

In terms of sectors, the construction sector posted an optimistic outlook due to expectations of new projects being awarded in 2018. Meanwhile, the retail and wholesale
trade sector was not as optimistic due to decreased demand. Businesses are also awaiting the effects of the implementation of the TRAIN law.

Employment outlook is also more upbeat as firms with hiring intentions have increased. Similarly, businesses with expansion plans in the industry sector have also
increased. This optimism is shared across different industries, except for the mining and quarrying subsector. Major business constraints include domestic competition and
lack of demand leading to low sales volume. On a more positive note, however, the number of firms affected by business constraints has been declining since the survey
started in 2006, which shows that business conditions are improving. Businesses also expect inflation to increase but remain within target, the peso to weaken and interest
rates to go up in the next quarters of the year.


Figure 18. Consumer Expectations Survey

Source: Bangko Sentral ng Pilipinas

Consumer Expectations Survey

Consumer sentiment was less optimistic for the first quarter of the year due to concerns on higher prices of goods, low income, and rise in household expenses. This is the
lowest consumer confidence since the 3rd quarter of 2016. The less optimistic sentiment also extended to the next twelve months. Weaker consumer sentiment is shared
across all income groups, with low-income groups turning less pessimistic and middle- and high-income groups posting less upbeat outlooks. The primary reason behind
the weaker outlook was the expectation of higher commodity prices, especially on electricity, food, non-alcoholic and alcoholic beverages, fuel, water, and transportation.
In addition to higher prices, consumers also expect interest rates to rise and the peso to weaken in 2018—a sentiment shared by businesses.


picture credit: flickr.com/photos


is a quarterly publication that presents the current economic situation of
the Philippines through various economic indicators as monitored by local and
international financial institutions. This includes the country’s most recent data
on Gross Domestic Product, Foreign Direct Investments and Remittances,
among others. In addition, studies on the economic performance and
financial forecasts for the Philippines are included in this report.

Stratbase ADR Institute

is an independent international and strategic research
organization with the principal goal of addressing the
issues affecting the Philippines and East Asia
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