World Bank releases study on business-friendly LGUs

26 May 2008 – A World Bank study entitled “Doing Business in the Philippines 2008” revealed that, among 21 Philippine cities, Taguig is the most business-friendly in terms of ease in starting a small or medium-sized business. On the other hand, Makati and Marikina edged out the other cities when it comes to securing a construction license to build a commercial warehouse.

Mandaluyong was best in ease in registering property, but the study reveals that a lot of reforms are still needed to lift the country’s ranking from 124th out of 178 economies worldwide when it comes to the number of procedures to register a property.

San Juan was at the bottom in terms of ease in starting a business and dealing with licenses. In the registration of property, Quezon City placed last.

The project also covered the following cities: Caloocan, Las Piñas, Malabon, Manila, Muntinlupa, Navotas, Parañaque, Pasay, Pasig, Taguig, Valenzuela, Cebu, Lapu-Lapu, Mandaue, Tanauan, and Davao.

NEDA approves new development and health projects

7 September 2007 – The National Economic Development Authority’s Investment Coordination Committee–Cabinet Committee recently approved $306 million worth of new projects proposed by the Mindanao Economic and Development Council, the Development Bank of the Philippines, and the Department of Trade and Industry.

NEDA’s ICC-CC approved the $190-million Mindanao Peace and Development activities proposed by MEDCo. The MEDCo project aims to develop economic infrastructure, improve governance and social services, and expand economic opportunities in conflict-affected areas in Mindanao. The financial plan will be provided as a grant from the United States Agency for International Development.

The NEDA body also endorsed the $101-million Health Care Investment Facility project of the DBP. It aims to modernize hospital and healthcare facilities by supporting investments in HMOs or the investment requirements of health-outsourcing firms. The project will be funded through a loan from Asian Development Bank and the German development bank KfW.

The DTI’s $15-million Sectoral Enhancement for Enterprise Development project was also given the green light. It aims to increase the competitiveness of key small and medium enterprises by mobilizing resources, expanding market access, strengthening government and private-sector partnerships, and improving the capacity of organizations to support businesses.

Meanwhile, the NEDA ICC-CC also approved the extension plans of some ongoing infrastructure projects. These include the extension of the LRT Line 1 up to the North Avenue Station of the MRT3, the additional funding for the Laguindingan Airport Development Project worth P2.47 billion, and the one-year extension of the new Bacolod (Silay) Airport Development project.

July inflation rises to a
5-month high of 2.6%

7 August 2007 – Higher fuel, light, and water rates unexpectedly pushed the headline inflation rate to a 5-month high of 2.6% in July from 2.3% in June. The core inflation rate also rose to a 5-month high of 3.0% in July. As expected, inflation for food, beverages, and tobacco picked up, accelerating to 2.8% from 2.6%, most likely due to the impact of the prolonged dry spell in Luzon.

Earlier, monetary authorities and private analysts had projected that inflation in July would reach a higher end of 2.5% due to the peso’s continued appreciation and monetary tightening.

February inflation dips to 2.6%, lowest in over four years

6 March 2007 – On account of a strong peso-dollar exchange rate, headline inflation slowed down for the eleventh straight month, falling to a 50-month low of 2.6% in February. Core inflation also decelerated for the fourth consecutive month, posting a 43-month low of 3.0% last month. Food inflation also slowed down for the fourth consecutive month to 3.0%.

Consumer inflation in February was better than expected since monetary authorities’ target for the month was between 3.0%–3.6%, while the median forecast among private analysts was 3.1%. MBC Research estimated February inflation at 2.8%–3.1%.

January inflation plunges to
39-month low of 3.9%

6 February 2007 – On the back of a strong peso-dollar rate and lower fuel pump prices, both headline and core inflation rates slid for the tenth straight month in January, dipping to 39-month and 37-month lows, respectively, at 3.9%.

Inflation for food items likewise slowed down for the third consecutive month, falling to a 35-month low of 4.3% in January. Inflation for nonfood items, which has also decelerated in the past seven months, plunged to a 33-month low of 3.3%.

The January inflation rate was slightly below private-sector expectations of 4.0%–4.5%, but fell within Bangko Sentral and NEDA estimates of 3.9%–4.6% and 3.9%–4.1%, respectively. At the 5 February auction of government securities, the interest rate bellwether, the 91-day T-bill rate, slipped to a historic low of 3.008% partly due to the positive inflation outlook for January.

Demand for money, however, has steadily increased in the past four months due to rising inflows of remittances from abroad and portfolio investments. Domestic liquidity rose to 21.4% in end-December 2006 from 14.5% in end-September. This trend of decelerating inflation in the midst of rising liquidity may already indicate financial deepening as revealed by monetary authorities, but it may also signal that inflation will pick up in the months ahead.

GDP grows 5.4% in 2006

31 January 2007 – From 5.0% in 2005, the domestic economy grew 5.4% in 2006, which falls within NEDA’s 5.3%–5.6% GDP growth estimate but below the 5.5% low-end target of the government’s economic and fiscal managers. GNP also expanded 6.2%, compared to 5.6% in the previous year.

While agriculture growth picked up to 4.1% in 2006 from 1.8% in 2005, the industrial and services sectors performed a hairline lower compared to their 2005 growth performance. By demand, growth in consumer spending accelerated to 5.5% from 4.9%. Government spending also grew faster at 5.7% from 4.0%, despite operating under a re-enacted budget. Capital formation recovered to a growth of 2.1% in 2006 from a 6.0% slump the previous year. Exports growth also accelerated to 12.1% from 4.2%, as imports growth slightly improved to 2.6% from 2.4%.

In the fourth quarter, GDP grew slower at 4.8% from 5.3% the previous year, while GNP rose 5.9% from 6.9%. Agriculture growth decelerated to 1.9% from 3.7% due to the damage to crops wrought by the typhoons that hit the country in the last quarter. Industry growth also weakened to 3.3% from 4.9%, dragged by lower growth in manufacturing and the contraction in mining, despite strong growth in utilities. Services growth stepped up to 7.0% from 6.4%, boosted by the finance, transport and communication, real estate, and private services (which covers business process outsourcing activities) subsectors. By demand, consumer spending and exports drove economic growth, expanding by 5.6% and 7.2%, respectively, from 5.0% and 6.3% in 2005. Government spending also rose 9.3% from 1.1%. Meanwhile, capital formation growth recovered to 3.4% from a 9.1% slump in the previous year. Imports growth accelerated to 4.0% from 1.4%.

The National Statistical Coordination Board also revised upward the GDP growth rate in the third quarter last year to 5.3% from an original estimate of 4.8%.

Looking forward, the government expects GDP to grow by 6.1%-–6.7% in 2007. The budget department pledged to front-load infrastructure spending ahead of the election-related public works ban. In July, state workers will also receive a 10.5% pay hike. Both measures are expected to contribute further to growth this year.

4.8% Q3 GDP growth a disappointment

29 November 2006 – The domestic economy grew just 4.8% in the third quarter, the same pace of expansion a year ago, owing to restrained public investments under a re-enacted national budget and to constraints in government procurement. This is reflected in the drop in overall construction growth to 1.0% from 6.0% in the same quarter a year ago, dragging industrial growth to 4.0% from 5.3%. On the demand side, government investments into construction grew by just 1.7%, down from 7.6%.

Growth in the aggregate agriculture, fishery, and forestry sectors actually stepped up to 4.1% from 1.7% a year ago, backed by the strong recovery in the forestry subsector. However, in industry, mining and quarrying declined to 2.8% from a 3.1% growth a year ago as manufacturing grew just 4.8%, down from 5.7%. But growth in utilities went up to 4.3% from 1.8%. Growth in services, in turn, remained at 5.6%, as other subsectors made up for the deceleration in the growth of the finance subsector.

By expenditure share, personal spending grew faster at 5.3% from 4.9%, while government spending posted a slight recovery to 0.4% from a 0.2% decline a year ago. Capital formation expanded 1.2%, up from a 4.9% contraction. Thus, overall domestic demand accelerated to 4.5% from 3.0%. A 10.3% growth in merchandise exports pushed overall exports growth to 9.1%, up from 6.7% a year ago. Conversely, the growth of merchandise imports weakened to 0.9% from 8.0% a year ago, pulling overall imports growth down to 1.2% from 7.5%. The depreciating peso failed to dampen external trade, which reflected the rising demand for electronics and the weakening of the U.S. economy, the country’s top trading partner. Net external demand continued to decline, from 2.6% to 78.9%.

Backed by strong inflows of overseas Filipino workers’ remittances, GNP growth accelerated to 5.8% from 4.8%.

Meanwhile, updated data compiled by the National Statistical Coordination Board saw an upward adjustment in the first-semester growth to 5.8% from the 5.5% growth first reported in August. Thus, GDP growth in first three quarters averaged at 5.4%, below the government's 5.6% low-end GDP growth target for 2006.

Inflation dips to 27-month low
in September

5 October 2006 – Due to lower fuel prices, a strong peso, and better food crop harvests, the headline inflation rate dropped for the sixth straight month, posting a 27-month low of 5.7% in September. The core or underlying inflation rate also dipped for the sixth consecutive month to a 28-month low of 5.0%.

The inflation rate for food recorded a 28-month low of 4.9% in September, while the inflation rate for nonfood items fell for the third straight month to a 26-month low of 6.5%.

Last month, pump prices of unleaded gas dropped by P2.50 per liter and diesel prices decreased by P2 per liter. Moreover, prices of liquefied petroleum gas dipped by P5.50 per 11-kilogram tank. Meanwhile, the average peso-dollar reference rate appreciated 1.9% to P50.401/US$ in September from P51.362/US$ in August. The downtrend in consumer prices leaves room for monetary authorities to cut the Bangko Sentral’s key interest rates to stimulate bank lending and economic activities.

However, the impact on food prices of last month’s Typhoon Milenyo, which left in its wake widespread infrastructure damage and crop and poultry losses, is expected to be felt starting this month.

Government keeps 5.7%–6.5% GDP forecast for 2007

25 September 2006 – The government is sticking to its forecast of 5.7%–6.5% GDP growth in 2007, despite concerns regarding oil price volatility and political uncertainty.

Socioeconomic Planning Secretary Romulo Neri says they have already factored in the expected increase in oil prices in their projections. Moreover, the government is confident that the steady inflows of overseas Filipino workers’ remittances has made the Philippine economy more resilient and better able to bounce back from various shocks. OFW remittances for the first seven months of 2006 have already reached US$7 billion, 15.8% higher than the US$6.05 billion in remittances reported in the same period last year.

Inflation slides to lowest level in
27 months

5 September 2006 – The rollback in fuel prices and easing power rates pushed the headline and core inflation rates downward for the fifth straight month, reaching a 27-month low of 6.3% and a 20-month low of 5.3%, respectively, in August.

Inflation for food, beverage, and tobacco items—which account for half of the consumer price basket—actually rose to 5.6% in August from 5.2% in July, as prices of dairy products, eggs, fish, fruits and vegetables, and meat rose faster than in the previous month. However, inflation for nonfood items decelerated to 6.9% from 7.3%, as the rise in prices of utilities (specifically power and water) and services slowed down.

Meanwhile, the average headline inflation rate in the first eight months went down to 6.9% from 8.0%, while the average core inflation rate as of end-August also decreased to 5.9% from 7.5%.

Consumer prices rise at slowest pace in two years

7 August 2006 – The National Statistics Office reported that both headline and core inflation rates continued to slow down for the fourth straight month, reaching two-year lows of 6.4% and 5.4%, respectively, in July, notwithstanding a P1.00-per-liter hike in fuel pump prices that month.

Inflation for food items also decelerated for the fourth consecutive month, reaching a 27-month low of 5.2% in July, while inflation for nonfood items declined to 7.3% from 7.8% in May and June. Although inflation for housing and repairs as well as services eased down, inflation has picked up since June for clothing; fuel, light, and water; and miscellaneous items.

Although inflation is expected to further slow down in the coming months, monetary authorities believe inflation will still average past the 4%–5% target for 2006.

Zamboanga Peninsula is fastest-growing region in 2005

10 July 2006 – The National Statistical Coordination Board released the regional breakdown of the country’s 5.0% GDP in 2005. Among the 17 regions of the country, the fastest-growing regions are the Zamboanga Peninsula (7.2%), Metro Manila (7.1%), and the Ilocos Region and Central Visayas (6.0%). The slowest-moving regions are Cagayan Valley (-5.4%), the Cordillera Region (1.1%), and Region XII (2.3%). Although it registered the lowest rate last year, Cagayan Valley was the fastest-growing economy in 2004, with its gross regional domestic product increasing by 10.4%.

Not surprisingly, Metro Manila accounted for 31.9% of the GDP, while Muslim Mindanao accounted for just 0.9%. Metro Manila also had the highest growth rate in terms of per capita GDP among the regions of the country, increasing by 5.5% in 2005.

Inflation slows down to 6.9% in May

6 June 2006 – Inflation slowed down for the second straight month, reaching a four-month low of 6.9% in May. Despite five rounds of fuel price hikes during the month, only clothing and services posted accelerated price hikes, while all other categories in the consumer price basket registered decelerated cost increases.

Inflation for food, beverages, and tobacco slowed down to 5.9% in May, while inflation for nonfood items likewise declined to 7.8%. Core inflation was at 6.1%.

The consumer price movement for May came within the Bangko Sentral’s expectations of 6.8%–7.5%, but below National Economic Development Authority’s expectations of 7.0%–7.3%. Monetary authorities are expected to keep Bangko Sentral’s policy interest rates stable.

GDP growth slows down to 0.9% quarter-on-quarter

31 May 2006 – The Philippine government reported a quarter-on-quarter seasonally adjusted GDP growth rate of 0.9% in the first quarter, the slowest pace of expansion of the domestic economy since the last quarter of 2004. According to the National Statistical Coordination Board, although services rose 2.0% quarter-on-quarter, agriculture shrank 0.1% and industry halted to zero growth. 

Year-on-year, however, GDP grew 5.5% in the first quarter—on track with government's revised target of 5.5%–6.2% for 2006—from 4.2% a year ago. The GNP also expanded 5.8% from 4.9%, despite a slowdown in growth of net factor income from abroad to 8.8% from 12.9%.

Growth in services, which accounts for 48.0% of GDP, slowed down to 6.2% from 7.0% a year ago because of high fuel prices. On the other hand, despite rising oil price hikes, manufacturing pushed growth in industry, which accounts for 31.7% of GDP, to 5.5% from 3.4% a year ago. After last year's mild dry spell, growth in agriculture, fishery, and forestry, which accounts for 20.4% of GDP, recovered to 3.8% from a 0.5% slump.

By demand, personal consumption gained slightly to 5.1% from 5.0% a year ago, despite high fuel prices and the VAT rate hike. Growth in public spending, on the other hand, accelerated to 9.4% from 2.2% as the government shifted its tack from fiscal discipline to pump-priming the economy even though the government has been operating under the 2005 budget. Meanwhile, the decline in capital formation softened to 2.7% from 8.9% last year due to a surge in public construction. Overall, growth in domestic demand accelerated to 3.8% from 1.8% a year ago. 

Despite an appreciating peso-dollar rate, growth in exports of goods and services stepped up to 12.2% from 1.4%, while growth of imports of goods and services recovered to 0.6% from last year's 2.2% decrease. Growth in net external demand therefore shrunk further to 62.0% from a decline of 17.7%. 

Compared to other countries, the Philippine GDP year-on-year growth of 5.5% in the first quarter was faster than Malaysia's 5.3% growth, Taiwan's 4.9%, and Indonesia's 4.6%. On the other hand, the country trailed behind Singapore's 10.6%, China's 10.2%, India's 9.3%, Hong Kong's 8.2%, South Korea's 6.2%, and Thailand's 6.0%. 

Meanwhile, the National Statistical Coordination Board revised GDP growth rates for the years 2003 to 2005 based on recent data on agriculture and fishery, private services, and construction. 

For 2003, GDP growth has been raised to 4.9% from 4.5%. For 2004, GDP growth has been raised to 6.2% from 6.1% because of upward adjustments in the performance of agriculture and services. For 2005, GDP growth was cut to 5.0% from 5.1% due to downward adjustments in agricultural and industrial performance. The adjustment in 2005 also reflects the revisions in GDP growth rate in the last quarter of 2005 down to 5.3% from 6.1% due to lower industrial performance. 

Given the substantial downward adjustment of the fourth-quarter 2005 GDP growth figure, the preliminary GDP growth estimate of 5.5% in first quarter 2006 may not hold up. Another shaky support is the monthly integrated survey of selected industries, with its constant revisions of past months’ performance in terms of the volume of production in manufacturing. Furthermore, the first-quarter GDP performance may have not yet reflected the full impact of the VAT increase to 12% on personal spending.

Q1 GDP estimate on track
with gov’t target

5 May 2006 – Socioeconomic Planning Secretary Romulo Neri estimates GDP to have grown by 5.5% in the first quarter on the back of an expected 4.8% growth in agriculture. Agriculture Secretary Domingo Panganiban based the growth projection in agriculture on improved rice and corn production due to the rains brought by the La Niña phenomenon. The National Economic and Development Authority also expects industry to have expanded 5.1% due to positive mining prospects.

Meanwhile, manufacturing’s volume of production shrank 10% in the first two months of the year compared to the 2.2% growth a year ago, based on data from the National Statistics Office. On the other hand, exports and imports grew 4.2% and 4.8%, respectively, in January–February.

For the second quarter, the index of leading economic indicators of the National Statistical Coordination Board rose to 0.222 from 0.130 in the first quarter. According to the NSCB, the uptrend was attributed to the positive performance of the following indicators: stock price index, exchange rate, tourist arrivals, hotel occupancy, merchandise imports, terms of trade, and new businesses. On the other hand, the agency observed declines in money supply, consumer price index, wholesale price index, and electric energy consumption.

The government’s GDP target for 2006 has already been downgraded to 5.5%–6.2% from the original target of 6.3%–7.4%. But private analysts, as well as the Asian Development Bank and the International Monetary Fund, expect GDP to average at 5.0% this year.

Lower LPG prices help pull down inflation in April

6 May 2006 – The country’s inflation rate slowed down to 7.1% in April after staying at 7.6% in the past two months. The change in consumer prices fell within the Bangko Sentral’s expectations of 7.0%–7.7% inflation for April.

BSP attributed the deceleration in consumer prices to the decline in LPG prices and lower inflation for selected construction materials. Oil firms rolled back LPG prices four times, by P4.50 per kilogram in April. On the other hand, domestic pump prices of fuel products rose by P1.50 per liter.

The core inflation rate likewise decreased to 6.3% in April from 6.5% in March.

Inflation remains at 7.6% in March

6 April 2006 – According to the National Statistics Office, the country’s headline inflation rate remained at 7.6% in March, the same pace of increase in consumer prices last February. However, the core inflation rate picked up to 6.5% in March from 6.3% in February.

The inflation rate for services dropped to 11.2% in March from 11.7% in February, while inflation rates for food, beverages, and tobacco and for clothing were unchanged. However, inflation for fuel, light, and water rose to 18.5% from 17.2% the previous month, while the inflation rate for housing and repairs also slightly accelerated to 4.5% from 4.2%.

On a month-on-month basis, the headline inflation rate slowed down to 0.4% in March from 1.0% in February.

Inflation surges to 7.6% in February

7 March 2006 – Inflation reached an eight-month high of 7.6% last month with the implementation of the 12% reformed value-added tax beginning 1 February.

Inflation for food items rose to 6.4% from 5.6% in January. Among these items were rice, corn, eggs, fruits, vegetables, and meat. Inflation for nonfood items picked up to 8.6% from 7.6%. In particular, inflation for fuel, light, and water accelerated to 17.1% from 13.5%. Inflation for services also picked up to 11.7% from 11.0%. Moreover, the underlying or core inflation rose to 6.3% from 5.7%.

Monetary authorities believe the one-time increase in the VAT rate is not going to lead to a sustained rise in inflation.

Forex and stock markets down as interest rate rises

20 February 2006 – Coup jitters and rising crude oil prices abroad drove the foreign exchange and stock markets down today. At the Philippine Dealing System, the peso depreciated 0.3% to close at P51.98/US$ from P51.80/US$ on 17 February. On the other hand, the Phisix fell 0.9% to 2,084.10.

At noon today, an explosion rocked the Malacañang compound. According to the Presidential Security Group, the source of the explosion was a container of lacquer thinner left in a garbage bin. But a group of junior military officers later claimed responsibility for the “explosion.”

Global oil prices climbed as Nigerian militants who attacked Shell’s export platform on 18 February threatened to cut Nigeria’s export capacity by targeting international oil companies in the Niger River Delta. At London’s ISE Futures Exchange, crude oil for delivery in April rose 1.9% to US$61.05 per barrel.

Meanwhile, the bellwether 91-day Treasury bill rate rose 16.36 basis points to 5.25%, reflecting higher rates in the secondary market.

Headline inflation rises but core inflation drops in January

7 February 2006 – According to the National Statistics Office, the headline inflation rate went up to 6.7% in January from 6.6% in December 2005. The Bangko Sentral ng Pilipinas had earlier estimated that inflation in January would be within 6.4%–7.1%, while NEDA had forecasted 6.0%–6.3%. Meanwhile, the core inflation rate subsided to 5.5% from 7.1% in the previous month and 7.9% a year ago.

Inflation for food, beverage, and tobacco items dropped to 5.6% from 6.6% a month ago and 7.4% a year ago, while inflation for nonfood items eased to 7.6% from 8.7% in December and 9.3% a year ago. According to the BSP, prices of fuel rose 24.5% from 21.7% in December and 20.6% a year ago. Likewise, prices of transportation and communication grew at 15.9% from 15.6% in December and 21.6% a year ago.

The BSP expects a favorable outlook on consumer prices this year due to the slowdown in liquidity growth and consumer spending, the strength of the peso, and better weather conditions. Monetary authorities also expect the reformed value-added tax will only cause a one-time increase in inflation.

GDP expands 6.1% in Q4; grows 5.1% for entire 2005

30 January 2006 – The National Statistical Coordination Board reported a 6.1% GDP growth in the fourth quarter of 2005, faster than expectations ranging from 4.3% to 5.5% and also an improvement over last year’s 5.3% growth rate.(The National Economic and Development Authority had previously estimated that GDP would grow by at least 5.2%.) GNP also expanded 7.0% in the fourth quarter from 5.5% a year ago as net factor income from abroad rose 20.0% from 8.7%.

By industrial origin, agriculture, fishery, and forestry combined grew 4.0% from 1.2% a year ago as palay production recovered from last year’s decline and fishery performance continued to pick up. Despite the double-digit growth in the mining and quarrying subsector, industry growth slowed down to 6.5% from 7.2% due to the slowdown in the manufacturing, construction, and utilities subsectors. Growth in services, on the other hand, rose to 6.7% from 5.9%, largely carried by the slowdown in the transportation, communication, and storage subsector, which overshadowed the pick-up in the trade, finance, and real estate subsectors.

By demand, consumer spending grew slower at 5.2% from 5.7%, particularly seen in the decline in consumption of beverage and tobacco, as well as of utilities. Despite weak sales reported by retailers during the Christmas season, consumer spending was sustained by overseas Filipino workers’ remittances. Government spending contracted 4.2% from a 5.6% surge a year ago. Fixed capital formation likewise shrunk 1.4% from a 4.3% growth last year. Thus, growth in overall domestic demand slowed down to 10.3% from 14.1%. Growth of exports of goods and services slowed down in real peso terms to 0.4% from 11.2%. On the other hand, the growth of imports of goods and services also decelerated to 1.2% from 5.8%. Thus, the decline in net external demand improved to 90.8% from 1,774.3%.

2005 PERFORMANCE
At the same time, the NSCB announced that GDP actually grew at 4.5% in the third quarter, stronger than the 4.1% reported in November last year. The agency revised the growth rate of agriculture to 1.9% from 1.8%; industry, to 4.7% from 3.9%; and services, to 5.4% from 5.1%.

Thus, GDP expanded 5.1% for the entire 2005, slower than the 6.0% growth in 2004, but in line with NEDA’s revised projection of 4.8%–5.1%. (Originally, the government set a 5.3%–6.3% GDP growth target in its medium-term development plan.) A mild El Niño dragged down the agriculture, fishery, and forestry growth rate to 2.0% from 4.9%. Industrial growth picked up slightly to 5.3% from 5.2% as manufacturing growth improved to 5.6% from 5.1%. Growth in services decelerated to 6.3% from 7.1%, reflecting a significant slide in the performance of transportation, communication, and storage.

GNP growth also slowed down to 5.7% in 2005 from 6.2% in 2004, even as net factor income from abroad surged 13.8% from 8.5% thanks to an 8.3% increase in OFW deployment last year. Consumer spending growth decelerated to 4.9% from 5.8% as high oil prices pushed up inflation to 7.6% from 6.0%. Government spending picked up, growing 2.7% in 2005 from a flat rate in 2004 as the national government contained the deficit to 2.7% of GDP from 3.9% of GDP. Capital formation declined 4.3% from a 9.5% expansion, reflecting a drop in investments in durable equipment used for industrial production. Thus, growth in overall domestic demand slowed down by almost half to 3.0% from 6.1%. Growth in exports of goods and services also slowed down to 2.3% from 14.1% due to weak demand for electronics goods from abroad. On the other hand, the growth in imports of goods and services also decelerated to 1.8% from 5.9% as domestic demand weakened with high oil prices abroad. Thus, the decline in net external demand improved to 1.4% from 25.6% a year ago.

According to the NSCB, growth in labor productivity dropped to 1.4% from 1.5%, attributed to the decline in agriculture, fishery, and forestry. Per capita GDP growth rate dropped to 3.0% from 3.9%. MBC Research estimated that per capita GDP in nominal dollar terms rose 11.1% to US$1,145.63 in 2005 from US$1,031.30 in 2004.

Inflation rises to 7.1% in November

6 December 2005 – With the implementation of the reformed value-added tax, the country’s headline inflation rate went up to 7.1% in November from 7.0% in September and October. The actual rise in consumer prices was higher than expected by the Bangko Sentral ng Pilipinas, which had projected a 6.4–6.9% inflation rate for November. The National Economic and Development Authority forecast for November was 6.7–7.1%.

The underlying or core inflation rate went down, however, to 6.1% in November from 6.3% in October. On the other hand, the inflation rate for food rose to 6.4% from 5.9%. Although the inflation rate for nonfood items fell to 7.8% from 8.1%, it remained higher than the overall rate for consumer price inflation.

From January to November, the headline and core inflation rates averaged 7.7% and 7.1%, respectively, from 5.7% and 5.5% a year ago. Food and nonfood inflation rates averaged 6.6% and 8.8%, respectively from 6.0% and 5.5% a year ago.

Philippines falls behind Asian neighbors in GDP standing

5 December 2005 – The Philippines lagged behind China, India, Hong Kong, Indonesia, Malaysia, and Singapore in terms of its GDP growth rate in the first three quarters of 2005. However, the country grew faster than Korea and Taiwan. Based on statistics collected by the Bangko Sentral ng Pilipinas, the National Statistical Coordination Board, and the Economist magazine, Asian domestic economies expanded as follows in the first nine months:

GDP growth rate of selected Asian economies, Q1-–Q3 2005
In percent

GDP growth falls to 4.1% in Q3

29 November 2005 – The National Statistical Coordination Board and the National Economic and Development Authority today released the performance of the Philippine economy in the third quarter. Rising fuel prices, political uncertainties, and the lingering effects of a dry spell dragged the growth of the economy to a nine-quarter low of 4.1% in the quarter, compared to 6.2% a year ago. On the other hand, GNP growth stepped up to 6.5% from 5.7% a year ago on account of healthy worker remittances and other factor incomes from abroad.

Agriculture, fishery, and forestry’s growth slowed down to 1.8% from 7.3% as palay production shrunk 7.1% from its 17.9% growth a year ago. Growth in services likewise decelerated to 5.1% from 7.8% due to weak growth in the transportation, communication, and storage subsectors. Industrial growth, however, accelerated to 3.9% from 3.6% as manufacturing growth rose to 5.5% from 4.2%.

On the demand side, the growth in domestic demand fell to 3.0% from 5.4% with the slowdown in increase in personal spending to 4.8% from 5.5% because of high oil prices. Government spending shrunk 2.1% from last year’s decline of 7.2%. Capital formation contracted 2.9% from a 10.4% growth a year ago. Net external demand also worsened, decreasing 1,476.6% from a 101.1% drop. Exports of merchandise and nonfactor services grew only 3.9% from 17.1% a year ago with the decrease in electronics demand abroad, but the exports of call center and other business process outsourcing services remain underestimated by current government statistics. On the other hand, imports of merchandise and nonfactor services rose 7.5% from 6.6%, which was attributed to high oil prices abroad. The merchandise import data, however, has yet to be adjusted according to the revisions made by the National Statistics Office since 2000.

The NSCB revised the second quarter GDP growth up to 5.2%. In the first three quarters, GDP growth averaged 4.6%, down from 6.3% a year ago. Looking ahead to the fourth quarter, the NEDA remains optimistic of a more positive economic performance based on an index of eleven leading economic indicators. But it does not look like the government can meet its 5.3% GDP growth target for 2005.

IMF upbeat on Philippine economy

23 November 2005 – Owing to progress on significant economic reforms, such as the implementation of the expanded value-added tax, an International Monetary Fund postprogram monitoring mission raised Philippine GDP growth projections to 5.0% from 4.7% for 2005 and to 5.0% from 4.8% for 2006. Inflation is expected to average 7.7% from the previous forecast of 8.2% for 2005. For 2006, however, inflation is seen rising to 7.8% from the previous forecast of 7.5%.

The IMF mission noted the rallying of the stock market, the tightening of sovereign bond spreads, and the appreciating peso against the U.S. dollar. The mission also said it expects a significant reduction in the public fiscal deficit due to a cut in the National Power Corporation’s losses. On the other hand, the team also pointed to risks, including oil price spikes abroad, a possible outbreak of avian flu, softened demand for electronics exports, and adverse developments in the capital markets that could raise borrowing costs. The IMF representatives recommended rationalizing fiscal incentives to balance the budget over the medium term.

The Philippines is expected to exit from the IMF’s postprogram monitoring by 2008.

BSP projects stronger forex rate but higher inflation rate for 2006

21 November 2005 – The Bangko Sentral ng Pilipinas believes stronger inflows of overseas workers’ remittances due to the increasing deployment of Filipinos abroad will offset the weak performance of exports this year. This will result in a higher balance of payments surplus of above US$1 billion by yearend—US$1.6 billion for the current account and US$303 million for the capital and financial account. In the first 10 months, the BOP surplus reached US$2.3 billion, but foreign debt servicing in the last 2 months of the year will cut down the BOP surplus. The BSP originally expected an end-2005 balance of payments surplus of US$853 million.

On the other hand, OFW remittances reached US$7.9 billion in the first 9 months. The BSP projects OFW remittances to grow 20% by yearend to US$9.4 billion from an original forecast of 10% growth to US$8.5 billion. The BSP expected gross international reserves of US$17 billion by yearend, but it already stood at over US$18 billion in end-October. Monetary authorities projected an average peso-dollar rate of P55.57/US$ for 2005 and 2006. BSP Deputy Governor Diwa Guinigundo even expects the foreign exchange rate to go below P55/US$.

Despite an appreciating forex rate, BSP projects inflation to average at 7.6–7.9% in 2005 and 8.0% in 2006. Both forecasts are higher than the inflation rate targets of 5.0–6.0% for 2005 and 4.0–5.0% for 2006.

BOP remains in surplus despite
decline in October

17 November 2005 – The country’s balance of payments position remained at a surplus after the first ten months. However, the surplus slipped to US$2.3 billion from US$2.7 billion after the first nine months owing to debt service payments. The balance of payments for October alone fell to a deficit of US$406 million after eight straight months of surpluses. Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. attributed the overall surplus to remittances of overseas Filipino workers. A year ago, the balance of payments position was at a deficit of US$182 million.

Inflation retains steady pace in October

7 November 2005 – The country’s headline inflation rate remained at a 13-month low of 7.0% in October. At the same time, the core inflation rate fell to a 15-month low of 6.3%. Inflation for food, beverages, and tobacco rose to 5.9% in October from 5.6% in September, while inflation for nonfood items slightly dipped to a 12-month low of 8.1%.

According to the Bangko Sentral ng Pilipinas, the “steady path of headline inflation and the continued deceleration in core inflation will help stabilize the public’s inflation expectations and provide a counterbalance to the expected impact of high oil prices and the Reformed Value Added Tax (RVAT) on consumer prices.” The monetary authority has yet to include the impact of another round of wage increases early next year as proposed by Malacañang to Congress. But the VAT and rising oil prices are already enough to drive consumer prices beyond inflation targets for 2006 and 2007.

In the first 10 months, average inflation reached 7.9%, which is still within the Bangko Sentral’s revised inflation expectations for 2005, but already above the original 5%–6% inflation target.

Inflation rate falls to 13-month
low in September

5 October 2005 – Both headline and core inflation dropped to their lowest rates in the past thirteen months, falling to 7.0% and 6.6%, respectively, last September. Inflation for food items dipped to its lowest rate in fifteen months at 5.6%, while inflation for nonfood items went down to its lowest rate in eleven months at 8.2%. Price movements for clothing, housing and repairs, and services remained stable in September. Year-on-year inflation for utilities and miscellaneous items also slowed down by 0.1% in September.

The average inflation rate in the first nine months reached 7.9%, compared to 5.2% a year ago. Aside from the expected price hikes in fuel products, another transport fare hike and the expected implementation of the new expanded value-added tax law after 18 October are expected to feed into consumer prices in October.

Consumer outlook down
for rest of 2005

12 September 2005 – Consumer outlook for the third and fourth quarters of 2005 declined. Respondents to the Consumer Expectations Survey of the Bangko Sentral ng Pilipinas cited the high prices of food, utilities, oil, and transportation; insufficient income; and higher household expenditures. For the last quarter, expectations are also lower regarding the country’s economic conditions and family financial situation.

For next year, however, consumers expect better prospects for additional income, more jobs, sound government policies, and overseas jobs. They would also like to see inflation slow down in the next twelve months.

ADB revises Philippine growth forecast

9 September 2005 – The Asian Development Bank has revised its projections on the country’s GDP growth and inflation rates as well as current account ratios for 2005–2006. ADB’s Asian Development Outlook 2005 Update also cautioned that its forecasts on the Philippines “are subject to a greater than usual uncertainty, given the impact that rising global oil prices have on the economy, disruptions to the tax legislation, and political uncertainty.”

In contrast to its upbeat regional growth outlook, ADB cut prospects on the growth of the Philippine domestic economy to 4.7% for 2005 and 4.8% for 2006 from 5.0% for both years. The country’s exports have been affected by the global electronics downturn. Bad weather also set back the performance of the agriculture sector in the first half. Despite the windfall income of the Bureau of the Treasury and the implementation of a revised sin tax law, ADB doubts the sustainability of the country’s improved fiscal position in the first seven months because it reflected “compressed development spending” and below-target collections of the Bureau of Internal Revenue and the Bureau of Customs. The bank also expects investments to remain weak next year and the absence of a “major fiscal stimulus” on account of the country’s “constrained budget position.” In 2007, however, GDP could expand 5.0% with the projected growth in the global economy and a modest recovery in agriculture due to improved weather conditions.

ADB also raised its inflation forecast by 1% to 7.5% in 2005, 7.0% in 2006, and 6.5% in 2007. Pressure on consumer prices is coming from the impact of weaker agricultural production on food prices, as well as from higher oil prices, power tariffs, and wage increases. On the other hand, the bank likewise revised its current account ratio to GDP upwards to 4.0% in 2005 and 3.6% in 2006 from 3.0% and 2.2%, respectively.

Instead of achieving fiscal consolidation ahead of its 2010 target, ADB recommends the government should focus spending on public infrastructure and social sectors.

Inflation higher in August

6 September 2005 – Headline inflation rose to 7.2% in August from 7.1% in July, pushed by accelerating costs of services and housing and repairs. While the increase in food prices decelerated to 5.8% from 5.9%, nonfood prices rose 8.4% from 8.3%.

Since inflation came in above the 6.6–7.1% target for the month, Bangko Sentral ng Pilipinas governor Amando Tetangco hinted of monetary tightening “in the short run.” Core inflation, however, has slowed down for the fifth straight month, coming in at 6.6%.

Average inflation in the first eight months is at 8.0%, close to the BSP’s revised inflation forecast of 7.9% for 2005. Rising world oil prices have already rendered the government’s original inflation target of 5.0–6.0% unrealistic.

Economy grows 4.8% in Q2

29 August 2005 – GDP expanded within expectations at 4.8% in the second quarter, down from 6.5% a year ago. GNP growth also slowed down to 4.7% from 7.4% since net factor income from abroad increased only 3.4% compared to 18.7% last year.

Though milder than previous cycles, the El Niño phenomenon slowed down the overall growth of the agriculture, fishery, and forestry sector to 1.8% from 4.2%. Industrial production grew only 4.6% compared to 5.3% a year ago, because while mining and quarrying expanded, construction activity decelerated. Although financial services posted double-digit growth, transportation and communications tumbled from last year’s double-digit performance, leading to a decline in the services sector to 6.1% from 8.2%.

On the demand side, high oil prices weakened growth in personal spending to 4.9% from 6.3%. While government spending rose 13.2%, a turnaround from last year’s 1.2% decline, capital formation shrunk 3.2% from last year’s 3.6% increase. Thus, overall growth in domestic demand decelerated to 3.9% from 5.3%. Meanwhile, growth in net external demand recovered to 2.9% from last year’s 19.4% decline. Exports growth slackened to 1.1% from 16.1%. Imports growth likewise fell to 1.5% from 6.8%.

High oil prices threaten
Asia’s economies

26 August 2005 – The International Monetary Fund believes oil prices will remain high in the medium term, posing a serious risk to the strong growth of Asian economies, led by China, India, and a recovering Japan. If high oil prices persist, then growth in Asia, which was at 6.75% last year, might be affected in 2005 and 2006.

The IMF rejects oil subsidies since they create a long-term burden for economies. Instead, the Fund wants consumers and companies to become aware of the true cost of oil. Rising oil imports have already affected the balance of payments in many countries.

According to Rodrigo de Rato, IMF managing director, Asian central banks should counter the threat to inflation, specifically in Indonesia and the Philippines. They are expected to remain “extremely vigilant” to curb any second-round effects on inflation from high fuel prices. He further suggested that Asian governments should cut their budget deficits.

ADB retains 4.7% Philippine GDP growth forecast

10 August 2005 – The Asian Development Bank’s Asian Recovery Information Center has released the August 2005 Asia Economic Monitor, retaining its consensus forecast of 4.7% Philippine GDP growth for 2005 since December 2004. The expected growth rate of the domestic economy is slower than last year’s 6.1% GDP growth, but is faster than the post–Asian financial crisis (1999–2004) GDP average of 4.4%.

Despite the boost on personal consumption from overseas worker remittances, investments to the country may be “constrained by weak investor confidence arising from political uncertainties.” Moreover, “public spending will be restrained by the government’s fiscal consolidation program.” Lastly, the report cites sluggish growth in export markets, which may result in softening export demand. Last December 2004, the report specifically mentioned “the winding down of the global electronics cycle, weaker growth in industrial countries, and the PRC economic slowdown,” which may slow down economic expansion in the country. The semiannual economic review likewise expects an average inflation rate of about 8%, which may require further tightening of monetary policy.

For 2006, GDP is also projected to grow at 4.7%.