|THE ECONOMY AT A GLANCE|
|I. FINANCIAL MARKETS|
|Interest rates (%)|
| 182-day T-bills|
| 364-day T-bills|
|Exchange Rate (US$1/PHP)|
Average for the month
|GDP (%) (at constant prices)|
Inflation Rate (%)
|Unemployment Rate (%)|
|Budget Balance (in Billion Php)|
Ratio to GDP
OFW Remittances (in Million US$)
Foreign Direct Investments (in Million US$)
|*Philippine Dealing System Treasury-R2|
|Sources: BSP, NEDA, NSO, BTR/DOF, DOT, BPI-Treasury|
|Date Updated: May 16, 2013|
Foreign Direct Investments Reach US$436 Million in February 2013
Foreign direct investments (FDI) rose to US$436 million in February 2013 from US$192 million posted in the same month last year.1,2 By FDI component, gross equity capital placements aggregated US$230 million, significantly higher by 74.2 percent from its year-ago level of US$132 million. The bulk of these equity capital investments—which came from Japan, the U.S., and Hong Kong—were directed to water supply, sewerage, waste management and remediation activities; manufacturing; arts, entertainment and recreation; and real estate. These gross equity capital placements were partly offset by the US$15 million withdrawals of investments, resulting in US$215 million net inflows of equity capital during the month. The sustained inflows of FDI reflect investors’ increasing optimism over the country’s growth potential notwithstanding the uncertainties on the strength of the global economy. These developments are also an indication of improved investment climate in the country on the back of sound macroeconomic fundamentals.
Reinvestment of earnings amounted to US$60 million in February 2013 as foreign investors opted to retain their earnings locally on account of favorable domestic economic prospects amid low and stable inflation, as well as a strong external payments dynamics.
Non-residents’ net placements in debt instruments issued by local affiliates (or intercompany borrowings between foreign direct investors and their subsidiaries/affiliates in the Philippines in the form of loans and debt securities) reached US$161 million in February 2013. This level was more than five times the US$30 million intercompany borrowings recorded in the same period last year. Parent companies abroad continue to lend funds to their local subsidiaries/affiliates to sustain existing operations or expand their businesses in the country.
As a result of these developments, cumulative FDI for the first two months of 2013 totaled US$1 billion. This was slightly lower however by 18.7 percent relative to the US$1.2 billion recorded in the same period last year. In particular, cumulative net inflows of equity capital settled at US$377 million, down by 55.8 percent compared to the US$852 million posted in the same period in 2012. This came about as gross equity capital placements of US$1.1 billion for the first two months of 2013 were offset by equity capital withdrawals of US$726 million. Gross equity capital placements came mostly from Mexico, Japan, the U.S., Malaysia and the Netherlands and were channeled mainly to manufacturing; water supply, sewerage, waste management and remediation activities; financial and insurance activities; and real estate sectors. Meanwhile, reinvestment of earnings summed up to US$145 million, also lower by 19 percent than the year-ago level of US$179 million. By contrast, non-residents’ placements in debt instruments issued by local affiliates reached US$490 million, more than twice the US$214 million registered in the comparable period a year ago.
(Source: Bangko Sentral ng Pilipinas)
April Inflation Decelerates to 2.6 Percent
Headline inflation slowed down further to 2.6 percent year-on-year in April from 3.2 percent in March, and was within the BSP’s forecast of 2.2-3.1 percent for the month. This brought the year-to-date average inflation rate to 3.0 percent, which is at the low end of the Government’s inflation target range of 4.0 percent ± 1.0 percent for 2013. Likewise, core inflation, which excludes certain food and energy items to measure generalized price pressures, decelerated to 3.1 percent in April from 3.8 percent in the previous month. Meanwhile, month-on-month headline inflation increased slightly to 0.2 percent from 0.1 percent in March.
The continued deceleration of headline inflation in April was traced mainly to the slower price increases for non-food items. This was due, in turn, to reductions in the prices of domestic petroleum products. Similarly, food inflation eased as most food commodities, particularly fish, oils, and sugar, posted lower price increases due to adequate domestic supply.
Governor Amando M. Tetangco, Jr. said that the latest inflation data continue to be in line with the BSP’s assessment of a manageable inflation environment over the policy horizon, with average inflation expected to settle within the lower half of the 4.0 percent ± 1.0 percent target range based on latest forecasts. Going forward, the BSP will continue to monitor emerging developments on both the domestic and global fronts to ensure that monetary policy settings remain consistent with the price stability objective while being supportive of non-inflationary growth.
(Source: Bangko Sentral ng Pilipinas)
March inflation slows to 3.2% year-on-year
Headline inflation decelerated to 3.2 percent in March from 3.4 percent in February, and was within the BSP’s forecast of 2.8-3.7 percent for the month. The resulting year-to-date average inflation rate of 3.2 percent was also within the Government’s inflation target range of 4.0 percent ± 1.0 percent for 2013. Core inflation, which excludes certain food and energy items to measure generalized price pressures, was steady at 3.8 percent. Month-on-month headline inflation was lower at 0.1 percent in March from 0.3 percent in February.
Moderate food inflation due to ample domestic supply of key food items, particularly vegetables, fruits, corn, fish, sugar, and oils, led to moderate headline inflation in March. Likewise, slower price increases for non-food items, due largely to the reduction in the prices of domestic petroleum products, helped push down inflation for the month.
Governor Amando M. Tetangco, Jr. noted that the lower inflation reading in March is consistent with the BSP’s assessment of a manageable inflation outlook over the policy horizon, with average inflation expected to settle within the 4.0 percent ± 1.0 percent target range based on latest forecasts. He assured the public that the BSP will continue its close watch on emerging price and output conditions to ensure that monetary policy settings remain consistent with the price stability objective while being supportive of non-inflationary growth.
(Source: Bangko Sentral ng Pilipinas)
Personal Remittance Flows Start Strong in January
Personal remittances from overseas Filipinos (OFs) reached US$1.9 billion in January 2013, higher by 8.4 percent than the year-ago level of US$1.7 billion, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced today.1 These flows consisted primarily of transfers from land-based overseas Filipino workers (OFWs) with work contracts of one year or more (which grew by 6.8 percent) as well as those from sea-based workers and land-based workers with short-term contracts (which grew by 11.7 percent).
Cash remittances from overseas Filipinos coursed through banks likewise increased by 8.0 percent to reach US$1.7 billion in January 2013 relative to the US$1.6 billion level recorded in the same month last year. Strong inflows of remittances were observed from both sea-based (US$412 million) and land-based workers (US$1.3 billion). The key sources of remittances were the United States (accounting for 38.9 percent of total cash remittances), Canada (11.0 percent), Saudi Arabia (7.6 percent), the United Kingdom (5.3 percent), the United Arab Emirates (4.7 percent), Singapore (3.9 percent), and Japan (3.8 percent).
Remittances were sustained on account of the steady demand for skilled and professional Filipino workers abroad as well as the continued expansion of remittance service providers’ global market coverage. The introduction of new financial products and services has also contributed considerably in addressing the remittance needs of overseas Filipinos and their beneficiaries.
Preliminary data obtained from the Philippine Overseas Employment Administration (POEA) indicated an expanding base of remitters worldwide as the total number of deployed overseas workers for 2012 grew by 6.7 percent to 1,800,465 from 1,687,831 a year ago. Of the total deployed overseas workers (new hires and rehires), 79.7 percent were land-based. For the period 1 January–28 February 2013, a total of 29,533 job orders that were mostly for service, production, and professional, technical and related workers were processed to meet the manpower requirements in Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, and Taiwan. The POEA also reported that workers with processed contracts and are awaiting deployment reached 2,083,223 for full year 2012, higher by 12.6 percent than the level recorded in 2011.
(Source: Bangko Sentral ng Pilipinas)
PHL Gross Domestic Product registers 6.8% growth in 4Q2012, FY growth at 6.6%
The country’s Gross Domestic Product (GDP) grew by 6.8 percent in the fourth quarter of 2012, paving the way for the full-year GDP estimate to post a broad-based growth of 6.6 percent. The increase was fuelled by the robust performance of the Services sector led by Trade and Real Estate, Renting & Business Activities as well as the substantial improvements of Manufacturing and Construction.
On the demand side, Household Final Consumption Expenditure (HFCE) together with government spending, the recovery of capital formation and the remarkable performance of the external trade contributed to the healthy growth of the economy in the fourth quarter and the whole year of 2012.
On an annual basis, Gross National Income (GNI) and Net Primary Income from the rest of the world (NPI) expanded to 5.8 percent and 3.3 percent in 2012 from 3.2 percent and 1.0 percent, respectively in 2011.
In the fourth quarter, NPI increased by 0.9 percent in 2012 from 6.2 percent in the same period in 2011 resulting to GNI’s growth of 5.4 percent in 2012 from 4.5 percent in the previous year.
Meanwhile, seasonally adjusted GDP and GNI grew by 1.5 percent and 1.2 percent, respectively during the current quarter. The Agriculture, Hunting, Forestry and Fishing (AHFF) and the Services sectors rose by 0.1 and 1.2 percent, respectively, while the Industry sector expanded by 2.5 percent due to the growth of Construction and Manufacturing.
With the robust economic growth in 2012, per capita GDP accelerated to 4.8 percent from 2.2 percent in 2011 while per capita GNI climbed by 4.0 percent in 2012 from 1.5 percent in 2011. On the other hand, per capita Household Final Consumption Expenditure (HFCE), slightly decelerated to 4.4 percent from 4.5 percent.
With the 6.8 percent GDP growth in the fourth quarter, per capita GDP, GNI, and HCFE rose to 5.1 percent from 2.3 percent, 3.7 percent from 2.8 percent, and 5.2 percent from 4.6 percent, respectively.
(Source: NSCB website)
Personal Remittances Continue to Rise in September
Personal remittances from overseas Filipinos (OFs) continued to increase in September 2012, rising by 6 percent year-on-year to reach US$2 billion,BangkoSentralngPilipinas Officer-in-Charge Nestor A. Espenilla, Jr. announced today.1 This brought cumulative remittances for the first three quarters of the year to US$17.3 billion, higher by 5.7 percent than the level posted during the same period in 2011. Remittance flows in January-September 2012 consisted primarily of personal transfers from both land-based overseas Filipino workers (OFWs) with work contracts of one year or more (which grew by 3.4 percent) as well as sea-based workers and land-based workers with short-term contracts (which increased by 13.1 percent).
Meanwhile, cash remittances from overseas Filipinos coursed through banks rose by 5.9 percent in September—exceeding US$1.8 billion, the highest monthly level recorded thus far. On a cumulative basis, fund transfers for the first nine months of the year totaled US$15.6 billion, registering a 5.5 percent expansion from the year-ago level. By type of worker, cash remittances from sea-based and land-based workers during the January-September 2012 period increased by 12.9 percent and 3.5 percent, respectively. By source country, the U.S., Canada, Saudi Arabia, Japan, the U.K., United Arab Emirates, and Singapore remained the top sources of cash remittances.Aggregate flows from these countries represented more than three-fourths (78.3 percent) of the total cash remittances coursed through banks.
Remittances remained resilient on the back of sustained foreign demand for skilled Filipino manpower and continued financial service innovations of banks and other financial institutions to address the remittance needs of overseas Filipinos and their beneficiaries. In particular, preliminary reports by the Philippine Overseas Employment Administration (POEA) indicated that for the period January-October 2012, a total of 262,444 job orders were processed largely for service, production, and professional, technical and related personnel. The job orders are mainly intended for employment opportunities in Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, and Taiwan.The POEA also reported that workers with processed contracts and those awaiting deployment reached1,276,620 in January-July 2012, higher by 8.9 percent than the level recorded in the same period last year. Meanwhile, higher transfers of OFs to their beneficiaries whose properties were damaged by the heavy monsoon rains (Habagat) and typhoon (Helen) that hit the country in August this year could have also contributed to the sustained rise in remittances.
(Source: Bangko Sentral ng Pilipinas)
1 The BSP started the release of data on personal remittances in June 2012. As defined in the Balance of Payments Manual, 6th Edition (BPM6), personal remittances represent the sum of net compensation of employees (i.e., gross earnings of overseas Filipino (OF) workers with work contracts of less than one year, including all sea-based workers, less taxes, social contributions, and transportation and travel expenditures in their host countries), personal transfers (i.e., all current transfers in cash or in kind by OF workers with work contracts of one year or more as well as other household-to-household transfers between Filipinos who have migrated abroad and their families in the Philippines), and capital transfers between households (i.e., transfers of fixed assets and financial assets that arise from the migration of individuals from one economy to another).
Personal Remittances Rise to US$11.3 Billion in the First Half of 2012
Personal remittances from overseas Filipinos (OFs) amounted to US$2 billion in June 2012, rising by 4.2 percent from the level posted in the same month a year ago, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced today.1 On a cumulative basis, remittances for the first half of the year reached US$11.3 billion, higher by 5.3 percent than the level registered in the same period last year. The steady uptrend recorded during the six-month period was supported by higher personal remittances from land-based OF workers (OFWs) with work contracts of one year or more (by 2.7 percent), as well as sea-based workers and land-based workers with short-term contracts (by 13.7 percent).
Meanwhile, cash remittances from OFs coursed through banks totaled US$10.1 billion in the first half of 2012, posting a year-on-year growth of 5.1 percent. Fund transfers from land-based workers at US$7.8 billion and sea-based workers at US$2.3 billion registered increments of 2.8 percent and 13.6 percent, respectively. During the six-month period, the countries which largely contributed to the continued growth in cash remittances were the U.S., Japan, Germany, the United Arab Emirates, and Hong Kong. While cash remittances from most countries in the euro area (e.g., Greece, Ireland, Spain, Portugal, among others) posted downtrends as a result of the interlocking sovereign debt and banking crisis, higher remittances were registered in some countries in the non-euro area, notably the United Kingdom.
In terms of the share to total remittances in the first six months of the year, the leading country sources were the U.S. (42.8 percent), Canada (9.6 percent), Saudi Arabia (7.6 percent), Japan (5.0 percent), the United Kingdom (4.8 percent), Singapore (4.2 percent), and the United Arab Emirates (4.1 percent).
The sustained growth in the deployment of OFWs was the key contributory factor to the upswing seen in remittance flows. Preliminary data from the Philippine Overseas Employment Administration (POEA) revealed that for the period January-December 2011, the number of workers deployed overseas increased by 14.8 percent to 1,687,831 from 1,470,826 in the same period a year ago. Nearly 80 percent of the total number of deployed OFWs were land-based workers (1,318,727), more than 25 percent of which were newly hired workers (437,720). The leading destinations of the land-based workers (new hires and rehires) were Saudi Arabia, the United Arab Emirates, Singapore, Hong Kong, and Qatar. Data from the POEA also showed that in January-July 2012, approved job orders aggregated 472,261, of which about 35 percent consisted of processed job orders for services, professional, technical, and production and related workers. The bulk of processed job orders were intended for the manpower requirements in Saudi Arabia, United Arab Emirates, Qatar, Kuwait and Taiwan.
Another factor that helped shore up OF remittances was the continued expansion of bank and non-bank remittance providers that enabled the wider capture of a larger share of the global remittance market.
(Source: Bangko Sentral ng Pilipinas)
End-July 2012 GIR Hits US$79.3 Billion Mark
The country’s preliminary gross international reserves (GIR) rose to US$79.3 billion as of end-July 2012, higher by US$3.2 billion than the end-June 2012 GIR of US$76.1 billion, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. announced today.1 The end-July 2012 GIR level could adequately cover 11.7 months worth of imports of goods and payments of services and income. It is also equivalent to 10.7 times the country’s short-term external debt based on original maturity and 6.4 times based on residual maturity.2
The increase in the end-July 2012 GIR level was due mainly to the foreign exchange operations of the BSP, foreign currency deposits by the Treasurer of the Philippines (TOP), income from investments abroad of the BSP, and revaluation gains on the BSP’s gold holdings arising from the increase in the price of gold in the international market. These were partially offset, however, by outflows for the payments by the National Government (NG) of its maturing foreign exchange obligations and foreign currency withdrawals by authorized agent banks (AABs).
Net international reserves (NIR), which include revaluation of reserve assets, increased by US$3.2 billion to reach US$79.3 billion as of end-July 2012, compared to the end-June 2012 NIR of US$76.1 billion. NIR refers to the difference between the BSP’s GIR and total short-term liabilities. (Source: Bangko Sentral ng Pilipinas)
Personal Remittances in First Five Months of 2012 Reach $9.3 Billion.
Personal remittances for the first five months of the year totaled US$9.3 billion, representing a 5.5 percent increase from the level registered in the same period last year, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. announced today.1 The steady expansion in personal remittances during the five-month period in 2012 was underpinned by the sustained growth in transfers from land-based Overseas Filipino (OF) workers with work contracts of one year or more (by 2.7 percent), as well as sea-based workers and land-based workers with short-term contracts (by 14.7 percent). For May 2012, personal remittances from OFs rose year-on-year by 5.2 percent to reach almost US$2.0 billion.
Meanwhile, remittances coursed through banks during the same period amounted to US$8.3 billion, higher by 5.3 percent relative to the level registered in the same period a year ago. Fund transfers from land-based workers increased by 2.8 percent to US$6.4 billion while those from sea-based workers grew by 14.6 percent to US$1.9 billion.
The major country sources of cash remittances from land-based workers for the first five months of the year were the U.S. (28.9 percent), Canada (10.1 percent), Saudi Arabia (7.6 percent), the United Arab Emirates (3.9 percent), Japan (3.4 percent), the United Kingdom (3.2 percent), and Singapore (3.1 percent).
The continued stream of remittances emanated from the strong global demand for professional and skilled Filipino workers. Preliminary data obtained from the Philippine Overseas Employment Administration (POEA) indicated that for the first half of the year, approved job orders reached 395,336, of which 29.1 percent consisted of processed job orders for service, production, and professional, technical, and related workers. The bulk of processed job orders were intended for the manpower requirements in Saudi Arabia, United Arab Emirates, Qatar, Kuwait and Taiwan. Another contributory factor to the favorable trend in remittances is the continued expansion of banks’ remittance network abroad through additional partnerships with foreign banks, money transfer operators (Source: Bangko Sentral ng Pilipinas)
Balance of Payments Reverts to Surplus in May, But 2012 YTD BoP Remains Weak
The Philippines posted a balance of payments surplus in May, in a reversal of deficits in the previous two months.
The country showed a surplus of $138Mn in May, a turnaround from deficits in March and April.
The May surplus, however, was 36% lower than the $217Mn surplus recorded in May last year.
Meanwhile, in 5M 2012, the BoP surplus was at $1.302Bn, 73% below the $4.794Bn in the same period last year.
The BSP lowered its 2012 BoP forecast to a surplus of $2.6Bn from $2.8Bn, citing lower fund inflows due to the crisis in the Eurozone and slowing growth in the US. (BusinessWorld)
Php19.9Bn Deficit 2nd Highest for May Since 2002
The Philippines reported a budget deficit in May, reversing a surplus the previous month, as the government stepped up spending on roads and schools.
The shortfall was Php19.9Bn ($469Mn), compared with a surplus of Php31Bn for April. This was also the 2nd highest deficit for a May since 2002 (the highest achieved in 2010).
The 5M running balance was at Php22.8Bn, which is double the 5M 2011 total but remains to be the 3rd lowest 5M deficit since 1998.
Revenue rose 9.4% from a year earlier, the highest for a May since 2008, while spending climbed 16.7%, the quickest in 5 months.
Net of interest payments, spending grew by 18%. 5M spending net interest payments climbed by 14%, outpacing the Q1 nominal GDP growth of 7.7%.
5M revenues, at Php646Bn, are now 83% of the H1 target, but 5M spending of Php668Bn are still 76% of the H1 goal. Both measures also zoomed past the nominal GDP growth.
Spurring continued growth are earnings from the Bureau of the Treasury (3.8%) and the Bureau of Customs (19.2%), while causing the slight decline in revenue growth are collections from the Bureau of Internal Revenue (76% of total revenues) and other non-tax collections (3.3%).
Meanwhile, providing a lift to spending growth are other spending (65%) and net lending (2.6%), while giving a drag are subsidies (2.3%) and interest payments (11%).
President Benigno Aquino plans to increase state spending to a record this year as he seeks to shield the economy from Europe’s sovereign-debt crisis and a growth slowdown in China.
Finance Secretary Cesar Purisima said that the wide fiscal space will give them an advantage to finance infrastructure projects and social programs that shall, in the long term, curb poverty and promote equality.
Budget Secretary Butch Abad said he will present a Php2.006Tn budget proposal for 2013 to Aquino. The budget deficit next year will likely be Php241Bn, or 2% of GDP, compared with a target of Php279.1Bn, or 2.6% of GDP this year. (Bloomberg, Bureau of the Treasury, BPI FMG Research)
Imports Drop 13.7% in April as Crude Purchases Plummet
Imports fell the most in 30 months, amid a global slowdown, and dropped to $4.77Bn from last year's $5.525Bn.
Overseas purchases shrank 13.7% in April from a year earlier, the biggest drop since October 2009, the trade deficit narrowed to $135Mn from $1.05Bn, while payments for electronic products (28% of the aggregate import bill) plunged by 22.1% from $1.69Bn a year ago to $1.317Bn.
Total imports were down by 11.2% from last month's $5.371Bn.
Semiconductors (21% of electronic products), contracted by 29% to $1.021Bn from $1.437Bn last year. In fact, electronics imports have now fallen by 22% in April and 25% as of 4M 2012, the worst growth figures since 2009.
However, the biggest drag on imports this time is petroleum crude (7.9% of all imports), which collapsed by 61% in April and brought down the 4M 2012 growth figure to only 4.8%. The other item which caused the weak growth number was aircraft, ships, and boats (0.4%), but to a much lesser extent than crude oil.
As expected, Saudi Arabia (5.8%) saw the brunt of the import decline. China (10%) also saw weakness; imports from that country saw an 8.9% decline, the first annual dip since 2009.
Some items prevented further dips in imports, including materials to produce electrical equipment, other mineral fuels, and telecoms equipment and electrical machines, each of whom comprise around 13% of all imports.
Among countries, a general improvement was seen in Taiwan (8.4%), Singapore (8.8%), the U.S. (12%), Japan (11%), and Korea (8.2%). In particular, Singapore saw the lowest decline in 6 months, while Japan recovered from tepid growth in March.
The government has forecast exports to grow 10% this year, and imports 15% as manufacturers seek to shore up depleted inventories. (BusinessWeek, Philippine Star, National Statistics Office, BPI FMG Research)
BSP Adopts New Concept on Remittances Based on Balance of Payments Manual, 6th Ed.; Personal Remittances Reach $1.9Bn
Personal remittances from OFs, a new concept from the BSP which it starts to release this month, amounted to $1.9Bn in April, rising by 5.5% year-on-year.
The BSP will start releasing data on personal remittances that comprehensively capture transactions in remittances from overseas Filipinos.
Personal remittances represent the sum of net compensation of employees (i.e., gross earnings of overseas Filipino (OF) workers with work contracts of less than one year, including all sea-based workers, less taxes, social contributions, and transportation and travel expenditures in their host countries), personal transfers (i.e., all current transfers in cash or in kind by OF workers with work contracts of one year or more as well as other household-to-household transfers between Filipinos who have migrated abroad and their families in the Philippines), and capital transfers between households (i.e., transfers of fixed assets, financial assets, and liabilities that arise from the migration of individuals from one economy to another).
Personal remittances, being broader in scope, would measure the total amount of remittance flows into the country, including cash and non-cash items that flow through both formal (via electronic wire) and informal channels (such as money or goods carried across borders).
This is in line with the refinement in the measure of remittances under the International Monetary Fund’s Balance of Payments and International Investment Position Manual, 6th edition (BPM6).
For 4M 2012, personal remittances increased by 5.6% relative to the same period a year ago to reach $7.3Bn. About 3/4 of the aggregate amount of personal remittances consisted of transfers from OF workers with work contracts of one year or more, with the rest coming from sea-based workers and land-based OF workers with short-term contracts.
Meanwhile, cash remittances from OFs coursed through banks reached $1.7Bn in April, higher by 5.3% compared to the level recorded in the same period last year.
This brought the cumulative 4M 2012 remittance level to $6.5Bn, 5.4% higher than 4M 2011. Higher remittances from both sea-based ($1.5Bn) and land-based ($5Bn) workers, which grew by 14.6% and 2.8%, respectively.
Preliminary data obtained from the Philippine Overseas Employment Administration (POEA) indicated that workers classified as new hires with processed contracts and are awaiting deployment rose by 16.5% to 85,009 for 2M 2012 from 72,941 in 2M 2011. Meanwhile, for 5M 2012, approved job orders aggregated 334,945, of which about a third or 100,848 consisted of processed job orders for service, professional, technical, and production and related workers which are intended for deployment to Saudi Arabia, the UAE, Qatar, Kuwait, Taiwan, Singapore and Hong Kong.
Increased inflows of overseas Filipinos’ cash remittances were also made possible by the continued expansion of banks’ presence across the globe through tie-ups established by local financial institutions with foreign and local money transfer operators, mobile phone service operators and pawnshops. To date, there are about 4,732 bank branches, correspondent banks, remittance centers, tie-ups/agents providing remittance services compared to 4,575 entities in the same period last year.
The top ten country sources of cash remittances passing through formal channels were the U.S.A, Canada, Saudi Arabia, Japan, the U.K., UAE, Singapore, Italy, Germany, and Hong Kong.
The BSP sees remittances growing at a 5% clip for 2012. (Bangko Sentral ng Pilipinas, BPI FMG Research)
Monetary Board Maintains Policy Rates on June 14
At its meeting on June 14, the Monetary Board (MB) decided to maintain the BSP's key policy rates at 4% for the overnight borrowing or reverse repurchase (RRP) facility and 6% for the overnight lending or repurchase (RP) facility, based on its assessment that the inflation environment remains manageable.
The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also maintained accordingly, while the reserve requirement ratios were kept steady.
Latest baseline forecasts continue to track the lower half of the 3-5% target range for 2012 and 2013, while inflation expectations remain firmly anchored. At the same time, domestic macroeconomic readings have improved significantly in the first quarter. Adequate liquidity and strong bank lending, spurred by prevailing low interest rates, should also help sustain domestic real sector activity in the months ahead.
Moreover, the MB noted that core inflation remains firm. Oil prices continue to show considerable volatility, while additional petitions for electricity rate adjustments could provide an upside influence on inflation.
At the same time, the weak global economy can contribute to moderate oil and other commodity prices. As such, inflationary pressures and the risk of second-round effects may also ease in the coming months.
On balance, therefore, the Monetary Board believes that the benign inflation outlook and robust domestic growth provide adequate room to keep policy rates unchanged, especially as the cumulative 50-basis-point reduction in policy rates and the operational adjustments in the reserve requirements earlier in the year work their way through the economy.
Meanwhile, the BSP has kept their 3.1% inflation forecast for 2012, while reverting to an earlier forecast of 3.4% for 2013. (Bangko Sentral ng Pilipinas, Reuters)
Exports Gain Better-than-Expected 7.6% on Non-Electronic Manufactures
Philippine exports climbed more than economists estimated in April as rising demand for apparel and minerals countered a slump in electronics products.
Shipments climbed 7.6% from a year earlier to $4.64Bn, reversing a 0.8% decline in March. The median was for a 0.5% gain.
However, growth for 4M 2012 remained weak at 5.5%, which was only half of the 11% growth seen in 4M 2011.
Electronics exports showed surprising weakness for the month, slumping by a 4-month low of 24% from last year and causing the 4M 2012 growth figure to record a 1.8% decline.
The most significant reason for the upward swing was non-electronic manufactures (50% of all exports), which grew by a record-setting 82% over a year (the closest figure to this was the 51% growth noted in January 2005). Within the category, the biggest contributor was other manufactures (17%), as well as chemicals (6.4%) and machinery and transport equipment (9.1%).
Among electronics, semiconductors (27%) and electronic data processors (5.1%) paced dips, while minerals such as copper metal, iron and steel, and copper concentrates (totaling less than 1%) also prevented further gains in the main export figure.
Meanwhile, among countries, Asian countries such as Korea (14%), Japan (16%), and Indonesia (2.7%) caused export growth to pick up, with Japanese exports only declining by 0.4%, while shipments to U.S. (15%) and Germany (3.0%) also improved.
On the other hand, softness was seen in China-related economies such as mainland China (11%), Singapore (8.1%), and Taiwan (3.4%). In particular, growth of exports to China came in at a 4-month low of 1.2%, while shipments to Singapore were at -19%, a 3-month worst.
Exports accounted for about 20% of the Philippine economy last year. Malaysia, Thailand, and Indonesia reported declining shipments in April, while South Korea’s overseas sales fell for a third month in May.
The BSP reduced its 2012 forecast to 10% from 12%. Meanwhile, Philippine Exporters Confederation President Sergio Ortiz-Luis said that exports may grow by 10% next year. The Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) sees a growth of 10% in electronics, while Trade Secretary Gregorio Domingo was more bullish at 25%. (Bloomberg, BPI FMG Research)
End-May GIR at 2012 Low of $76.0Bn
Preliminary data showed that the country’s gross international reserves (GIR) stood at $76.0Bn as of end-May. This was lower by $0.5Bn compared to the end-April level of $76.5Bn.
The end-May GIR could adequately cover 11.4 months worth of imports of goods and payments of services and income. It is also equivalent to 10.8 times the country’s short-term external debt based on original maturity and 6.6 times based on residual maturity.
The slight decline in end-May GIR level resulted mainly from disbursements arising from payments by the National Government for its maturing foreign exchange obligations, as well as revaluation losses on the BSP’s gold holdings due to the decline in the price of gold in the international market.
These outflows were partially offset, however, by inflows from foreign exchange operations and income from investments abroad of the BSP as well as foreign currency deposits by authorized agent banks (AABs).
Net international reserves (NIR), which include revaluation of reserve assets, decreased by $0.5Bn to reach $76.0Bn as of end-May, compared to the end-April NIR of $76.5Bn.
The BSP currently expects its foreign reserves level to be at $75Bn by end-2012. (Bangko Sentral ng Pilipinas, Reuters)
May Inflation Lower at 2.9% as Electricity Growth Slows
Year-on-year headline inflation decelerated slightly to 2.9% in May from 3.0% in April, well within the BSP’s forecast of 2.5-3.4% for the month and the lowest May inflation since 2007.
This brought 5M 2012 inflation to 3.0%, at the low end of the Government’s inflation target range of 3-5% for 2012 and also the slowest for a 5M figure since 2007.
Meanwhile, core inflation, which excludes certain food and energy items, rose to a 4-month high of 3.7% in May. It averaged 3.5% for the first 5 months of the year, lower than the 4.1% average for 2011.
The slightly lower May headline inflation was due largely to lower charges for household electricity rates and the series of downward price adjustments on LPG and kerosene in NCR. Electricity prices fell by an average of 1.1%, the biggest monthly decline since October 2010. This led to an annual inflation of 5.7%, the slowest since 2009.
Meanwhile, continuous gains in rental prices prevented inflation from falling further. Actual rentals grew by 0.5% from last month and a 3-year high of 3.9% from last year's prices.
Other factors which influenced the price growth print were:
- the weather condition favoring fishermen in catching fish, resulting to ample supply of fish species in the markets
- 10 regions outside NCR posting price declines in vegetables, but higher onion and tomato prices in NCR due to their low supplies
- sufficient supplies of locally grown fruits like mango, banana and pineapple
- a general downward price adjustments in chicken outside NCR, but higher prices of chicken in NCR
- price reductions in cooking oil in selected regions, including in NCR
- higher prices of NFA rice, combined with mixed price movements among the regions
- an upsurge in the prices of sugar
- upward adjustments in the prices of selected items for personal care and effects in many regions, including NCR, together with the higher prices of meals eaten outside the home in selected regions
- increased prices of clothing and footwear items
- higher prices of medicines in many regions, including NCR, along with the increased charges for medical services in selected regions
- upticks in the prices of selected items for household operation
- higher prices of alcoholic beverages and cigarettes
- lthe series of price rollbacks in gasoline and diesel in most of the regions, including NCR
The annual inflation in NCR moved up at a slower pace at 2.2% in May from 2.5% in April. Meanwhile, in AONCR, the annual inflation improved to 3.1% in May from 3.2% in April. Slowdowns in the annual rates were posted in 9 regions, with the biggest decrease of 1.1 percentage points noted in ARMM (2.5% from 3.6%). The lowest rate at 1.1% was still observed in the Ilocos region, while the highest rate at 4.5% was still seen in Caraga.
The lower inflation reading in May is consistent with the BSP’s assessment of a manageable inflation outlook over the policy horizon, with average inflation likely to settle well within the 3-5% target range.
The BSP's inflation forecast for 2012 is at 3.10%, while the outlook for 2013 price growth is at 3.30%. (Bangko Sentral ng Pilipinas)
PHL Economy Posts 6.4% Growth in Q1 2012 on Retail Trade, Electronics Exports
GDP grew by 6.4% in 1Q 2012 compared to an upwardly revised growth of 4.0% last year, and is the fastest in 6 quarters.
The above-expectations growth benefited from a regime of benign inflation and drew from the revitalized Services sector, particularly from Trade and Other Services.
The service sector grew by 8.5%, the fastest growth since Q3 2004 and the quickest for a Q1 since 1981. The biggest contributor under services, Trade and Other Services, grew by 8.9%, the quickest in 6 quarters.
It also got a boost from the industry sector, which grew by a 4-quarter high of 5.0%, but was the slowest since the 2009 decline. Manufacturing, which has recovered some grounds that got eroded during H2 2011, gained by 5.7%, a 3-quarter peak.
Finally, agriculture gave some gains, improving the 2.5% decline noted in Q4 2011 by growing 1.0% in Q1 2012. Most of the improvement came from palay production.
More specifically, the impressive growth rate in the income side came from retail trade; radio, TV, and communication devices, and food manufacturing.
Weakness came from renting and other business, furniture and fixtures, and manufacturing of chemicals other products.
On the demand side, the growth increase came from government consumption, which grew by 24%, the highest since 1981, and net exports (where exports grew by a 5-quarter higher of 7.9%, and imports declined by 2.6%).
Meanwhile, private consumption growth remained steady at 6.6%, faster than Q4 2011 and the quickest Q1 growth since 1998.
On the other hand, capital consumption declined by 13%, the worst in 13 years, due to a substantial inventory drawdown. Removing that, fixed capital grew by a modest 2.8%, still the slowest since a 2009 fixed capital recession.
Most of the contribution came from durable equipment, which grew by 3.6%, but also remained the slowest Q1 growth since 2009.
Construction growth actually slowed to 0.3%, the weakest for a Q1 since 2008, as gains in public construction was slowed by weakness in private building.
In the demand side, growth came from exports of semiconductors and electronic data processors, a decline in imports on consignment, and gains in road vehicles and other special industrial machinery.
On the other hand, weakness was noted as sugar shipments waned, imports of semiconductors, transport equipment, and EDP's gained, and miscellaneous personal spending wavered.
With compensation of our overseas workers on the rebound, the Net Primary Income (NPI) grew by 4.0%, pushing the GNI/GNP growth to 5.8% from 3.5% in 2011.
On a seasonally adjusted basis, GDP gained momentum growing by 2.5% in Q1 2012 while GNI grew by a slower pace of 1.3%.
With projected population reaching 95.2Mn, per capita GDP grew by 4.6% while Per capita GNI grew by 4.0% and per capita HFCE grew by 4.9%. Per capita HFCE has been growing robustly since the fourth quarter of 2010.
The government will keep its 5-6% GDP growth for 2012, while maintaining its "fighting target" of 7-8%. (National Statistical Coordination Board, BPI FMG Research)
Moody's Improves Credit Outlook of Philippines to Positive
Moody's has changed the outlook on the Government of the Philippines' Ba2 rating to positive from stable.
The key drivers for the decision are:
- expectations of continued trend fiscal and debt consolidation
- the enhanced finance-ability of government debt
The government of the Philippines has continued to demonstrate prudence in its fiscal management, as characterized by low budget deficits relative to its rating peers and a steadily declining level of debt relative to GDP.
Such outcomes are the result of expenditure restraint and improved revenue performance.
Moreover, despite the absence of legislative reforms, more effective tax administration measures have resulted in revenue growth outpacing nominal GDP growth over the past five quarters. And although spending disbursements have accelerated since late 2011, the up tick in revenues has led to the faster-than-expected consolidation of the country's deficits and debt burden.
Factors that could lead to a ratings upgrade are:
- structural improvements in revenue mobilization
- continued reductions in the government debt burden (debt/GDP ratio)
- an acceleration of investment spending that places the economy on a path of stronger growth
These developments should also be accompanied by the continued health of the country's balance of payments and stability of the financial system.
Although unlikely, given the positive rating outlook, factors that could lead to a change in the outlook to stable, or a negative rating action, include:
- a destabilization of macroeconomic conditions that could lead to an unmooring of inflation expectations and an adverse effect on financing conditions
- a shift away from the focus on good governance, resulting in turn in a deterioration in the investment climate and, ultimately, revenue performance
Earlier in the year, S&P revised its own credit outlook to positive from stable. It remains two places beneath investment rating, while Fitch Ratings is one notch below the coveted grade. (Standard and Poor's, Moody's Corporation, Fitch Ratings, Bloomberg)
Government Keeps Inflation Target for 2012-2014
The Development Budget Coordination Committee (DBCC), the Government’s inter-agency economic planning body, under DBCC Resolution No. 2012-2 dated 22 February 2012, approved the retention of the inflation target of 4 ± 1% for 2012-2014.
The review of the inflation target was prompted by the NSO’s shift to the new 2006-based CPI series. The review was deemed necessary to take into account possible significant differences in the statistical properties between the old and new series and any major structural changes that are reflected in the new index that could influence the achievement of the inflation target.
The decision to maintain the inflation target was based on two key considerations. Firstly, analysis of available data showed that the old 2000-based CPI and the new 2006-based CPI series are not statistically different from each other and that there appeared to be no significant upward bias in the new CPI series. Secondly, the inflation target represents the desired long-range inflation level and should be maintained to serve as an anchor for the public’s expectations about future inflation, thereby allowing them to formulate their investment, consumption, as well as saving decisions with greater certainty. (Bangko Sentral ng Pilipinas)
1Q BOP Surplus of $1.2Bn Draws Support from Current and Financial Accounts
The country’s balance of payments position remained in surplus in the first quarter of 2012 at $1.2bn. This was, however, lower by 64.4% compared to the $3.5bn surplus in the same quarter a year ago, as both the current and capital and financial accounts yielded lower net inflows during the quarter.
The surplus in the current account was boosted mainly by higher inflows from overseas Filipino (OF) remittances and business process outsourcing (BPO) services transactions while the net inflows in the capital and financial account emanated largely from increased foreign direct investments.
After economic activity across the globe slowed down markedly at the end of 2011 due to the heightened sovereign debt crisis in some parts of the euro area, global economic prospects have gradually improved during the quarter. The threat of a sharp worldwide slowdown eased with improved activity in the U.S. and the policy measures undertaken by the European Central Bank to foster the proper functioning of the euro area economy. A fragile economic recovery is underway, but the risks remain elevated amid high unemployment, slow growth, continued economic woes in Europe, and higher oil prices. Nonetheless, growth in Asia is anticipated to gain momentum with economic activity remaining relatively solid in most emerging and developing Asian economies while weak recovery will likely persist in major advanced economies.
As a result of the continued surplus in the BOP, gross international reserves (GIR) reached $76.1bn as of end-March 2012, reflecting a 15.4% ($10.1bn) increase from the year-ago GIR level of $66bn. At this level, reserves could sufficiently cover 11.4 months’ worth of imports of goods and payments of services and income. It was also equivalent to 10.9 times the country’s short-term external debt based on original maturity and 6.4 times based on residual maturity.
The current account registered a surplus of $882mn, equivalent to 1.6% of GDP. This was, however, 8.1% lower than the surplus of $960mn in the comparable quarter in 2011. The surplus in the current account was sustained by net receipts in current transfers and services, which more than compensated for the higher net payments in the income account and the widening of the trade-in-goods deficit.
The trade-in-goods deficit widened slightly by 2.2% to $4.0bn compared to the $3.9bn deficit posted last year, as the increment in imports level (by $748mn) was higher than that in exports (by $661mn). Merchandise trading activity slowly rebounded in the first quarter of the year, with both exports and imports of goods registering growth of 5.5% and 4.7%, respectively. This favorable outcome could be attributed to the gradual improvement in global economic prospects following a string of encouraging economic indicators on the U.S. economy (e.g., improved employment numbers, rising business confidence) and better policy measures adopted to address the euro area sovereign debt crisis. Exports of goods rose to US$12.7 billion in Q1 2012 from $12.0bn in the same quarter a year ago. The improvement in exports performance was due mainly to higher shipments of manufactured goods, notably electronic products, machinery and transport equipment, wood manufactures, garments, and processed food and beverages. Meanwhile, imports of goods increased to $16.7bn in Q1 2012 due to higher purchases of capital goods and mineral fuels and lubricants indicating the continued expansion of domestic economic activity.
Net receipts in trade-in-services increased by 12% to $1.1bn in Q1 2012 from $956mn in the comparable quarter last year as a result of higher net receipts in BPO-related transactions, particularly computer and information services (11.8%), and miscellaneous business, professional, and technical services (3.5%), as well as construction services (233.3 percent). The improvement in the performance of the services account could also be attributed to lower net payments in travel, financial, personal, cultural and recreational, and government services. These positive developments more than offset the higher net payments in transportation (e.g., freight services in line with higher imports of goods), royalties and license fees, insurance, and communication services.
The income account recorded higher net payments in Q1 2012 amounting to $256mn compared to $99mn a year ago. The weak performance of this account was due to increased net payments in investment income which more than offset the higher earnings of resident OF workers of US$1.5 billion, reflecting a 15.2 percent increment from the year-ago level. Net payments in investment income rose by 25.1 percent during the quarter, mainly on account of increased outlays for: a) dividends to foreign direct investors (by 124.4%); b) interest on bonds issued abroad by the National Government (NG) (by 9.4%) and banks (by 70%); and c) interest on foreign loans by local corporations (by 25.4%).
Net receipts in current transfers amounted to $4.1bn, higher by 1.3% than the year-ago level of $4bn. Current transfers during the quarter drew support from the steady remittance flows from non-resident OFs amounting to $4bn, or a growth of 2.6%. Robust cash transfers in the first quarter of 2012 were driven by the sustained demand for Filipino manpower in various foreign labor markets and by the continued expansion of banks’ presence across the globe through tie-ups established by local financial institutions with foreign and local money transfer operators, mobile phone service operators and pawnshops.
Capital and Financial Account. The capital and financial account yielded net inflows of $962mn in the first three months of 2012, although lower by 73.7% than the $3.7bn net inflows recorded in the same period last year. Capital inflows moderated during the quarter, reflecting continued concerns over the sovereign debt crisis in some parts of Europe. The downgrade of sovereign credit ratings of some European countries by Standard and Poor’s (S&P) in January and by Fitch and Moody’s in February resulted in some volatility in the market which caused risk aversion among investors. Net inflows of portfolio investments during the quarter slowed down year-on-year. Other investments, on the other hand, posted higher net outflows. These developments more than outweighed the increase in net inflows in the direct investment and capital accounts.
Net inflows of direct investments reached US$696 million in the first quarter of the year, higher than the US$406 million net inflows in the same quarter last year. Contributing largely to the trend was the surge in foreign direct investments, which increased to US$850 million during the review quarter from US$493 million posted in Q1 last year. In particular, equity capital yielded higher net inflows of US$931 million from US$151 million last year. On a gross basis, inflows of equity capital reached US$1 billion in Q1 2012 due largely to significant investments in the manufacturing sector. Strong macroeconomic fundamentals and favorable growth prospects of the country encouraged expansions in business operations of multinationals.
Portfolio investments registered net inflows of $1.3bn in the review quarter. This was, however, about half of the $2.7bn net inflows registered in the same quarter last year. The major sources of inflows were: a) subscription by non-residents to the bonds flotation of the NG ($1.5bn), banks ($722mn), and local private corporations ($500mn); and b) non-residents’ net placements in equity securities issued by banks ($151mn) and domestic corporations ($248mn).
The other investment account posted US$1.1 billion net outflows in the review quarter, significantly higher than the US$351 million net outflows in the same quarter last year. The following transactions accounted for the outflows during the quarter: a) residents’ net placements of currency and deposits abroad ($646 million); b) net repayment of loans to non-residents by local banks ($596mn); c) non-residents’ net withdrawal of currency and deposits in local banks and corporates ($165mn); and d) settlement of local banks’ accounts payables to non-residents ($132mn).
According to BSP’s projections, the country’s BOP will hit a surplus of at least $2.8Bn by the end of this year. (Bangko Sentral ng Pilipinas, BPI FMG Research)
Debt Levels Remain in Prudent Levels in Q1 2012
The country’s outstanding external debt approved/registered by the BSP stood at $62.9bn as of end-March 2012, reflecting an increase of $1.2bn (or 1.9%) compared to the level at the close of 2011. The increase is due largely to $2.3bn net availments as investment and business activities by both public and private sector entities escalated due to the upbeat business sentiment. Its impact was partially mitigated by: (a) negative foreign exchange revaluation adjustments ($0.83bn) as the U.S. dollar recovered against other currencies, particularly the Japanese Yen; and (b) higher resident investments in Philippine debt papers ($0.28bn).
External debt refers to all types of borrowings by Philippine residents from non-residents that are approved/registered by the BSP.
On a year-on-year basis, debt stock grew by $2.0bn (or 3.2%) due to additional acquisitions by non-residents of Philippine debt papers ($1.0bn) and net availments ($0.97bn).
Notwithstanding the higher debt level, major external debt indicators remained at very prudent and comfortable levels in the first quarter. Gross international reserves (GIR), which reached a record high of US$76.1 billion in March 2012, represented cover for short-term debt of 10.3 times (under the original maturity concept) and 6.9 times (under the remaining maturity concept). The ratio under the remaining maturity concept remained substantially higher than the international benchmark of 1.0. [ST accounts under the remaining maturity concept consist of obligations with original maturities of one (1) year or less, plus amortizations on medium and long-term accounts falling due within the next 12 months starting April 2012.]
The external debt ratio or outstanding external debt as a percentage of aggregate output (gross national income or GNI) is an indicator of solvency and reflects the country’s capacity to repay foreign obligations over a long-term horizon. The ratio improved to 20.7% from 22.2% a year ago. The same positive trend is observed using gross domestic product (GDP), with the ratio at 27.4% compared to 29.5% in 2011.
The external debt service ratio (DSR), or the ratio of principal and interest payments relative to exports of goods and receipts from services and income, is a measure of the sufficiency of foreign exchange to meet currently maturing obligations. The improvement in the ratio to 8.0% from 8.2% the previous year was due to an increase in the country’s merchandise exports despite developments in the U.S. economy and the Euro zone. The ratio remained much lower than the 20 to 25 percent international benchmark, indicating a strong liquidity position vis-à-vis payment obligations.
The external debt portfolio remained predominantly medium to long-term (MLT) in tenor, with MLT accounts representing 88.2% of total. The larger share of MLT accounts means that loan payments are spread out over a longer period of time, resulting in a more manageable level of debt payments.
The weighted average maturity for all MLT accounts stood at 22.3 years. Public sector borrowings had a longer average tenor of 24.2 years, compared to 10.9 years for the private sector.
Short term external debt comprised the 11.8% balance of debt stock, and consisted largely of trade credits and inter-bank borrowings.
Total public sector external debt rose to $48.3bn in March 2012 due to net availments of $1.6bn, pertaining mostly to borrowings of the National Government to support increased spending for public infrastructure. The upward impact of this development on the debt stock was partially offset by negative foreign exchange revaluation adjustments ($0.84bn) as well as additional investments by residents in Philippine debt papers ($0.13bn). Private sector external debt likewise grew from $14.1bn to $14.6bn, mainly due to higher trade credits availed of by non-banks and bond issuances by local banks for general funding requirements.
The creditor profile remained unchanged, the Officer-In-Charge continued. Borrowings from official creditors (consisting of multilateral and bilateral funders) continued to have the largest share at 42.5% of total; most of these loans carry “softer” or more concessional terms. Foreign holders of bonds and notes comprised 38.5% of total, followed by foreign banks and other financial institutions at 12.3%. The rest of the creditors (6.7%) were mainly foreign suppliers/ exporters.
The currency composition of external debt was likewise essentially maintained: U.S. dollar-denominated accounts represented nearly half (49.5%) of total, Japanese Yen accounts accounted for 25.1%, and multi-currency loans from the Asian Development Bank and the World Bank, 11.6%. The rest of the accounts comprising the 13.8% balance were denominated in 18 other currencies. (Bangko Sentral ng Pilipinas, BPI FMG Research)
Leading Economic Indicator (LEI) Continues to Accelerate in 2Q 2012
The composite leading economic indicator (LEI) continued its upward direction in the second quarter 2012, posting 0.125 from a revised 0.064 in the first quarter of the same year. After a decline in the third quarter 2011, the LEI has accelerated three quarters in a row, strongly indicating a continuation of the positive outlook for the country’s economy.
Of the 11 indicators that make up the composite LEI, seven contributed positively. The positive contributors include, starting with the largest positive contributor: (1) visitor arrivals, (2) number of new businesses, (3) stock price index, (4) money supply, (5) wholesale price index, (6) hotel occupancy rate, and (7) terms of trade index. However, the combined share of positive contributors for this quarter decreased to 78.9% from 82.1% in Q1 2012.
On the other hand, the negative contributors, beginning with the largest negative contributor, were: (1) consumer price index, (2) foreign exchange rate, (3) total merchandise imports, and (4) electric energy consumption. The negative contributors accounted for 21.1 percent of total contribution.
For the Q22012 LEI, five indicators shifted direction in contribution from the first quarter of 2012, namely: consumer price index, electric energy consumption, and total merchandise imports, from positive to negative, and money supply and terms of trade index, from negative to positive.
(National Statistical Coordination Board)
Foreign Portfolio Investments Yield Net Inflows in May
Portfolio investment transactions for the month of May yielded net inflows of $106Mn, 68.1% lower than the $333Mn recorded a month ago.
Out of the $106Mn, $69Mn was for PSE-listed securities, $87Mn was for Peso GS, and money market instruments experienced a $49Mn outflow.
Registered investments were almost at the same level as April at $1.5Bn due largely to several initial public offerings by:
- Bloomberry Resorts Corporation
- Rockwell Land Corporation
- East West Banking Corporation
- Calata Corporation
Outflows, on the other hand, rose to $1.4Bn (or by 23.9%) from last month’s level due to growing concerns about Greece and Spain.
The main beneficiaries of investments in PSE-listed shares were holding firms ($337Mn), diversified industrials ($228Mn), and banks ($183Mn).
The United States, the United Kingdom, Hong Kong, Luxembourg and Singapore were the top five investor countries for the month.
The United States continued to be the main beneficiary of outflows from investments. (Bangko Sentral ng Pilipinas)
Consumer Confidence Index Declines in Q2, But Remains Positive in the Year Ahead
Consumer sentiment weakened in Q2 as respondents cited the following reasons:
- perceived high cost of goods and services
- rising unemployment
- low salary and income
- expected higher household expenditures
The overall confidence index (CI) declined to -19.5% from -14.7% in Q1 2012. Thus, pessimists continued to outnumber the optimists.
The CI is computed as the percentage of households that answered in the affirmative less the percentage of households that answered in the negative with respect to their views on a given indicator.
The weaker consumer sentiment was carried to the next quarter as the CI reverted to the negative territory at -2.4% in Q2 from 2.8% in Q1. The next quarter CI, however, was better than its year ago level of -7.8%.
Several other concerns could have also driven households’ lower optimism, including:
- the increase in transport fares in March
- the expected upward adjustments in power rates (which took effect in May)
- the anticipated hike in tuition fees
- tougher competition for jobs as the new college and high school graduates join the labor force during the quarter
In the year ahead, consumer confidence remained positive but less optimistic, as the CI declined slightly to 10% from 11.9% in Q1.
Other results in the survey were as follows:
- The quarter-on-quarter decline in confidence was observed across the three component indicators of consumer confidence:
- economic condition
- family financial situation
- family income
- Respondents’ outlook was lowest on the economic condition of the country, followed by family financial situation, and family income.
- The less favorable outlook during the quarter was noted across income groups.
- The low-income group turned more pessimistic on all three component indicators.
- The middle-income group recorded the highest drop in sentiment about the economic condition of the country but remained upbeat on family income.
- The sentiment of the high-income group likewise declined on the country’s economic condition while remaining optimistic on their family income and financial situation.
- More households expected to spend more on basic goods and services in Q3 2012 compared to the previous quarter’s survey results.
- Notably, the biggest increases in spending outlook (due partly to the school opening in June) were for:
- clothing and footwear
- The spending outlook for food, house rent, and water remained broadly steady.
- Those for electricity, fuel, medical care, personal effects and hotel and restaurants increased moderately.
- Despite the weaker current quarter sentiment, respondents’ outlook on buying conditions for big-ticket items continued to be favorable during the quarter.
- The outlook on buying conditions was most upbeat for:
- real estate
- consumer durables
- motor vehicles
- Respondents’ views were driven by the following considerations:
- that real property is a good investment
- consumer durables offer family convenience
- motor vehicles can be used for business and personal purposes.
- This outlook was reflected in increased consumer confidence on buying intentions for big-ticket items in the next 12 months.
Among economic indicators:
- Respondents expected inflation to increase to 8.8% from 8.3% in the Q1 2012 survey, mainly due to concerns of continuing tensions in the Middle East and the expected upward adjustments in power rates.
- Meanwhile, the outlook on interest rates was broadly steady.
- More respondents expected unemployment to rise over the next 12 months as the index increased to 60.2% from 52.8% in the last quarter’s survey.
- Meanwhile, respondents expected that the peso would continue to depreciate but the number that said so declined compared to the previous quarter.
Of the 544 households that received Overseas Filipino Workers’ (OFW) remittances in Q2 2012:
- 95% used remittances for food
- 67.7% used them for education (from 66.1% in Q2 2011).
- 44.5% used them for savings (from 42.7%)
- 57.8% allocated them for medical payments
- 44.1% used them for debt payments
- the portion for house and lot, consumer durables and motor vehicles decreased
- 5.0% used them for investment (from 8.5%) (Bangko Sentral ng Pilipinas)
Foreign Direct Investments Collapse in March, But Still Up for 1Q 2012
For the month of March, foreign direct investments (FDI) recorded net inflows of $14Mn, with the bulk of investments emanating mainly from equity capital. However, FDI net inflows during the month were only 8.9% of the $158Mn recorded a year ago.
Net equity capital and reinvested earnings amounted to $85Mn and $9Mn, respectively, lower by 22% and 78% than the levels posted during the comparable period in 2011.
The other capital account during the month reversed to a net outflow of $80Mn from a net inflow of $8Mn in the same period a year ago.
Still, cumulative net FDI inflows for 1Q 2012 totaled $850Mn, registering a 72.4% increase from the $493Mn net inflows posted in the same period a year ago.
In particular, gross equity capital placements reached $1.0Bn, almost 6 times higher than the year-ago level of $176Mn.
A large chunk of the inflows for 1Q 2012 was accounted for by the acquisition of shares by a foreign firm in a local beverage manufacturing company.
Equity capital infusion in 1Q 2012 came mainly from the U.S., Australia, Netherlands, Singapore, and Japan. These inflows were primarily infused to the following sectors: manufacturing (food products, beverages, and electrical/electronic circuits), real estate, wholesale and retail trade, and financial and insurance services.
Reinvested earnings amounted to $30Mn, 1/3 of the $91Mn level posted in the previous year.
The other capital account—which consists largely of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines—reversed to a net outflow of $111Mn from a net inflow of $251Mn during the comparable period in 2011 due to intercompany loan repayments and higher trade credits extended to affiliates abroad. (Bangko Sentral ng Pilipinas)
National Government Debt Decreased to Php5.075Tn as of End-April
As of April, the National Government debt stood at Php5,075.24Bn, lower by Php13.70Bn from the end-March level.
Of the total debt, Php2.056Tn or 40.5%, is owed to foreign creditors, and the rest to domestic creditors.
Domestic debt increased by Php3.76Bn from the recorded end-March level due to the combined effects of the Php4.07Bn net issuance of government securities by NG and Php0.31Bn net depreciation of the USD and EUR against the peso on Multicurrency RTBs.
Foreign debt decreased by Php17.46Bn from the previous month’s level due to the Php28.97Bn appreciation of the local currency against the US dollar and net repayment of Php2.07Bn. This however was partially offset by the P13.04 billion net appreciation of third currencies against the US and Php0.54Bn adjustment due to the late recording of availment.
On the other hand, the contingent debt of the National Government, composed mainly of guarantees issued by the National Government, moved down to Php548.97Bn from end-March level of Php549.50Bn.
The decrease in foreign contingent debt of Php1.71Bn was due to the combined effects of the Php1.30Bn net repayment, Php5.48Bn appreciation of the local currency against the US dollar, and Php5.07Bn net appreciation of third currencies against the US dollar. Domestic contingent debt increased by Php1.18Bn due to domestic borrowings of PHILEXIM from LBP. (Bureau of the Treasury)
Business Confidence is Higher in Q2 2012
Businesses’ outlook on the economy continued to improve in Q2 2012 due to the following factors:
- increase in orders and new contracts/projects leading to higher volume of production
- expansion of businesses and new product lines
- increased government spending
- seasonal uptick in demand during summer and the enrollment and harvest seasons
- prevailing favorable macroeconomic conditions such as lower interest rates and manageable inflation
- steady growth of overseas Filipinos’ (OFs) remittances
The overall confidence index (CI), computed as the percentage of firms that answered in the affirmative less the percentage of firms that answered in the negative with respect to their views on a given indicator, rose for the fourth consecutive quarter to 44.5% compared to 40.5% in Q1 2012 and 31.8% in Q2 2011.
The sentiment of businesses in the Philippines mirrored the improved business outlook globally, particularly in the US, Germany, Australia, New Zealand, Hong Kong, Korea and Singapore.
Businesses anticipated economic expansion to continue in Q3 2012, although growth could be slower as the next quarter CI remained positive but declined to 44.6% from 55.4% in the previous quarter. This is due to expectations of slower demand and slack in business activity during the rainy season in the industry, wholesale and retail trade and services sectors.
Other details in the report were:
- The sentiment of businesses in both the National Capital Region (NCR) and Areas Outside the NCR (AONCR) improved for the current quarter but turned less sanguine for Q3 2012.
- For both the current and next quarters, NCR respondents remained more optimistic in their outlook on the economy than those from AONCR.
- Firms engaged in international commodity trading were more optimistic in their outlook in Q2 2012.
- Importers were the most bullish.
- Exporters manifested the biggest improvement in sentiment, largely due to:
- continued high metal prices
- stronger production volumes
- The optimism of dual-activity firms likewise increased in Q2 2012.
- For Q3 2012, even as the overall business outlook was less optimistic, the outlook of exporting firms improved compared to a quarter ago while those of the importers and dual-activity firms declined, similar to the national trend.
- Firms’ sentiments across employment size were more favorable in Q2 2012.
- Large-sized firms’ business confidence was the most buoyant, followed by the medium- and small-sized firms.
- However, for Q3 2012, the outlook of firms across employment size turned less upbeat.
- Across sectors, the business outlook in Q2 2012 was broadly more bullish.
- Firms in the construction sector were the most optimistic, followed by the services and industry sectors.
- For the next quarter (Q3 2012), except for the steady outlook of the construction sector, sentiments of firms across sectors, while remaining positive, turned less favorable.
- The construction sector showed heightened optimism among all sectors, registering an all-time high CI in Q2 2012, due to brisker business in anticipation of the stronger implementation of the planned Public-Private Partnership (PPP) projects this year.
- Businesses also expected other public infrastructure projects and expansion plans of the private sector to be on stream during this quarter.
- The sentiment of the services sector continued to improve in the current quarter, particularly for the business activities, community and transport sub-sectors, due to:
- favorable business conditions
- upsurge in investment (both public and private)
- robust consumer demand, owing in part to seasonal factors such as enrollment and tourism
- The industry sector attributed its more upbeat outlook to:
- higher demand from both the domestic and overseas markets
- planned business expansion
- increased government infrastructure spending
- stable prices of basic commodities
- brighter growth prospects of the economy
- Meanwhile, the outlook of wholesale and retail trade firms declined slightly as business prospects of some firms were constrained by high electricity costs and stiff domestic competition.
- On account of the mixed outlook on business activity for Q2 and Q3 2012, firms’ confidence about their own operations across sectors did not show an improvement.
- Expectations of firms in the services and construction sectors remained broadly steady while those in the industry and wholesale and retail trade sectors declined.
- Financial conditions outlook turned less pessimistic as the index, while staying in the negative territory, continued to improve for the fourth consecutive quarter.
- Meanwhile, firms are of the view that their liquidity requirements could be met through available credit as more respondents continued to report easier access to credit relative to those who said otherwise compared to a quarter ago.
- Another indicator supporting expectations of sustained growth in 2012 was the employment outlook index for the next quarter, which remained positive although lower at 22.1%.
- About 3 in every 10 respondent firms in the industry sector (29.1%) indicated expansion plans for Q3 2012.
- The highest expansion plans came from:
- mining and quarrying
- electricity, gas, and water
- The average capacity utilization for the current quarter rose to 76.2%, the highest reading since Q3 2008.
- The top three business constraints identified by respondents in Q2 2012 were:
- insufficient demand (leading to low sales volume)
- unclear economic laws (such as:
- unclear and inconsistent applications of tax laws
- red tape
- delays in approval of government licenses
- unclear PPP financing guidelines
- unclear laws on fishing
- Respondents that expected inflation to go up continued to outnumber those with the opposite view, but the number that said so declined in Q2 2012.
- For Q3 2012, the number of respondents that anticipated higher inflation increased due to expectations of higher oil prices given concerns of continuing tensions in the Middle East and pending petitions for electricity rate adjustments.
- On the other hand, more respondents expected the peso to appreciate in Q2 and Q3 2012. Expectations of the peso’s sustained appreciation could be due to anticipated strong inflows of:
- overseas Filipinos’ remittances
- business process outsourcing (BPO) receipts
- foreign investments
- a recovery of export demand
- Meanwhile, interest rates were expected to remain broadly steady in Q2 2012 but to rise in Q3 2012. (Bangko Sentral ng Pilipinas)
2011 Approved FDI Posts Highest Level Since 1996
The total FDI for 2011 was at the highest level since 1996, reaching Php256.1Bn and surpassing the Php241.1Bn pledge recorded in 1997.
As a percent of GDP, approved FDI's recovered to 2.6% from 2010's 2.2% portion. However, the figure still lags behind the 3.1% part revealed for 2007, just before the global financial crisis.
In 4Q 2011, total FDI approved by the 6 investment promotion agencies (IPAs) amounted to Php165.8Bn, 42% higher than the Php116.6Bn approved in 4Q 2010. The amount is the highest quarterly FDI turn out ever since the government started compiling consolidated approved FDIs and comes out of the commitments coursed through PEZA which accounted for about 87% of the total FDIs.
The IPAs are the Board of Investments (BOI), the Clark Development Corporation (CDC), the Philippine Economic Zone Authority (PEZA), the Subic Bay Metropolitan Authority (SBMA), the Authority of the Freeport Area of Bataan (AFAB), and the Board of Investments Autonomous Region of Muslim Mindanao (BOI-ARMM).
The United States, one of the country’s constant sources of FDI, was the top source during the quarter, as it shared 32% of the total FDI commitments.
Manufacturing, a consistent top recipient of FDI commitments, again topped all other industries as it stands to receive 54% or Php89.5Bn. Real estate activities came in second with investment pledges valued at Php47.6Bn, contributing 29%, followed by electricity, gas, steam and air conditioning supply at Php20.4Bn or 12% share.
Approved investments of foreign and Filipino nationals in 4Q 2011 totaled Php227.5Bn, 2.3% higher than the Php222.4Bn registered in 4Q 2010. Pledges from Filipino nationals stood at Php61.7Bn, which accounted for 27% of the total approved investments in the quarter.
Foreign and Filipino ventures approved by the 6 IPAs for 4Q 2011 were expected to create 53,585 jobs, increasing by 41% from previous year’s projected employment of 38,101 jobs. Out of these anticipated jobs, 78% or 41,920 jobs would come from projects with foreign interest. (National Statistical Coordination Board, BPI FMG Research)
CPI Base Year Changed to 2006, Weights Modified
The National Statistics Office announced that it will re-base of the Consumer Price Index (CPI) for All Income Households to 2006, from the current base year of 2000. The 2006-based CPI is the ninth re-basing in the history of the statistical arm of the government.
In addition, several weights were modified and new groupings were assigned to several categories. For instance, food and non-alcoholic beverages, while remaining to have the highest weight among the major groups at 39.0% in the 2006-based CPI, has dropped from a 41.5% share in the 2000 series. Except for milk, cheese and eggs and other food products, the shares of all the other food groups went down. In particular, the weight of rice declined to 8.9% from 9.4%.
Similarly, the share of housing, water, electricity, gas and other fuel, the second highest group, dropped to 22.5% in 2006 from 23.7% in 2000. Expenditure on rentals and materials for the maintenance and minor repair of dwelling were lower while those for water and electricity were higher. In the 2000 series, housing was reported separately from water, electricity, gas and other fuel (then known as fuel, light and water).
Other major groups, however, increased their shares in the 2006 CPI weights. Transport saw a 2.2% increase (from 5.6% to 7.8%), the biggest in the group, brought about by a higher share in passenger transport by road. In the 2000 series, transportation was reported as an aggregate with communication.
Restaurant and miscellaneous goods and services also went up, seeing a 1.5% increase from 10.5% to 12.0%, due to bigger weights in meals, snacks, drinks and refreshment purchased outside the home, as well as of personal care items.
The rebasing of the CPI from 2000 to 2006 is in accordance with the recommendation of the NSCB in its Resolution No. 2, Series of 2009, to reflect the latest composition of goods and services consumed and availed of by households across provinces and regions of the country. The main data source of consumption pattern (CPI weights) was the 2006 Family Income and Expenditure Survey (FIES), while the composition of the provincial market baskets was based on the Commodity and Outlet Survey (COS) conducted in July 2008.
Methodological changes were also introduced in the 2006-based CPI, taking into consideration the United Nations (UN) recommendations in the grouping of commodities in the market basket. For the first time, the NSO will adopt the UN Classification of the Individual Consumption According to Purpose (COICOP) in grouping the items in the CPI in order for the series to become more comparable with other countries.
The NSO will release the rebased CPI series on July 5, 2011, and will include monthly CPI from January 2006 to June 2011. Data users can expect two sets of the CPI until December 2011, as the new series will be issued simultaneously with the 2000-based series. CPI series for January 2012 onwards shall be 2006-based. (National Statistics Office)
NSCB Revises 2010 GDP Growth Upward to 7.6% on a Change of Base Year
Preliminary results of a change in base year gave an upward revision to growth in 2010 gross domestic product to 7.6%. This is higher than the 7.3% reported under the old series, which was already the fastest in more than 30 years.
Ahead of the release of first quarter 2011 GDP data on May 30, the Philippines has recalculated its historical GDP series using a new base year. Constant-price gross domestic product is now calculated based on 2000 prices, while the old series was calculated using 1985 prices.
According to the National Statistics Coordination Board, estimates of the National Accounts of the Philippines (NAP) using the Chain Volume Measures (CVM) would be released starting May 30, 2011. This was in accordance with the recommendation of the 1993 System of National Accounts to use CVMs instead of fixed based year estimates to more accurately measure economic growth. (National Statistics Coordination Board, CNBC, Reuters)
U/KBS' NPL Ratio Improves to Two Percent in October 2012
As of end-October 2012, the non-performing loan (NPL) ratio of universal and commercial banks (U/KBs) improved to 2.00% from September 2012’s 2.05%. The improvement in the NPL ratio was due to the combination of a decline in the amount of NPLs and the continuing rise in the total loan portfolio. U/KBs’ non-performing loans of P69.12 billion in October 2012 was 1.17% lower than September 2012’s P69.94 billion. The industry’s total loans increased 1.43% to P3.459 trillion from P3.410 trillion in September 2012.
Banks continued to take an active position in setting up loan loss reserves. The NPL coverage ratio of U/KBs stood at 138.73% in October 2012. NPA coverage ratio widened to 69.63% in October 2012 from 69.39% in September 2012. (Bangko Sentral ng Pilipinas)
Bank Lending Continues to Grow in November
Total outstanding loans of commercial banks, net of banks’ reverse repurchase (RRP) placements with the BSP, expanded in November 2012 at a slower pace of 14.0% than the growth of 15.8% in October 2012. Inclusive of RRPs, bank lending growth decelerated to 13.3% in November 2012 from 14.2% in October 2012. On a month-on-month seasonally-adjusted basis, commercial bank lending in November increased 0.5% for loans net of RRPs or 0.1% for loans inclusive of RRPs.
Loans for production activities—which comprised more than four-fifths of banks’ aggregate loan portfolio—grew 14.6% in November 2012 from 16.4% in October 2012. The expansion in production loans was driven primarily by increased lending to these sectors: real estate, renting, and business services (24.8% growth); wholesale and retail trade (26.9%); financial intermediation (37.3%); manufacturing (13.6%); transportation, storage, and communication (26.5%); and public administration and defense (48.9%). Meanwhile, declines were observed in lending to mining and quarrying (-39.5%) and agriculture, hunting, and forestry (-41.8%).
Growth in consumer loans eased to 12.1% in November 2012 from 13.9% in October 2012, reflecting the slowdown across all types of household loans. (Bangko Sentral ng Pilipinas)
Domestic Liquidity Growth Accelerates in November
Domestic liquidity (M3) grew 9.8% y-o-y to P4.9 trillion in November 2012. This was faster than the 8.6% growth in October 2012. On a monthly basis, seasonally-adjusted M3 likewise recorded a higher growth rate of 1.9% than the 0.9% (revised) month-on-month increase in October 2012.
The growth of money supply was driven by the expansion of net domestic assets (NDA) at 18.4% y-o-y in November 2012 from 13.3% in October 2012. The increase in NDA was mainly due to the sustained increase in net domestic credits on solid lending activity by commercial banks to the private sector.
Meanwhile, net foreign assets (NFA) decreased 1.0% y-o-y in November 2012, a reversal of the 2.8% growth in October 2012. This was brought about by the increase in foreign liabilities as foreign banks stepped up their placements and deposits with their local branches, while foreign assets in the form of loans receivables from foreign banks contracted. (Bangko Sentral ng Pilipinas)
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