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Monitoring the Philippine Economy

Fourth Quarter 2012 Report

Project of the De La Salle University- Angelo King Institute

By Mitzie Irene P. Conchada
Assistant Professor
School of Economics

Convergence of high growth and stable inflation attributed to sound macroeconomic policies back up strong domestic demand and consumer and investors’ confidence in the fourth quarter of 2012.

  1. Economic performance
    • The year 2012 ends with strong growth for the fourth quarter. Growth rate for the fourth quarter reached 6.8 percent bringing overall growth for the year to 6.6 percent, exceeding expectations. Supply side factors showed that the stable growth was driven by the excellent performance of the services sector led by real estate followed by financial intermediation services with 7.7 and 7.2 year-on-year (y-o-y) growth respectively. On the demand side, government spending and private spending were the highest contributors with a y-o-y percentage growth rate of 9.1 and 6.9 respectively. The broad-based growth contributed to higher overall y-o-y growth of 6.6 percent for the year 2012.

    • January inflation slightly climbs on higher basic commodity prices. Headline inflation rate reached 3.0 percent y-o-y in January, slightly higher than last December’s 2.9 percent. The National Capital Region (NCR) had a lower inflation rate of 2.4 percent compared to areas outside NCR with 3.3 percent. This was attributed to higher food, electricity and alcoholic beverages and tobacco prices due mainly to the recently implemented Sin Tax Reform Act of 2012. The Bangko Sentral ng Pilipinas (BSP) also reported that the increase in food prices was attributed to limited domestic supply caused by weather-related production disruptions while higher electricity prices was caused by the outages of some power plants. This year’s average inflation target range is between 3 to 5 percent, a manageable outlook according to the BSP.
    • Philippine trade performance continues to improve in November. Trade deficit for the month of November amounted to USD4.4 million but proved to be lower than last October’s trade deficit of USD10.7 million. The slight improvement was caused by a 5.5 percent y-o-y increase in exports which was attributed to the increase in the value of shipments and commodities such as metal components, woodcrafts and furniture, electronic products, cathodes and sections of cathodes, of refined copper and ignition wiring set and other wiring sets used in vehicles, aircrafts and ships. Total export was recorded at Php3.55 billion. Imports, on the other hand displayed a 2.2 percent y-o-y growth due mainly to an increase in inward shipments of major commodities bringing total imports to Php5.135 billion.
    • Industrial production slackens in November. The National Statistics Office reported a slower growth rate of 9.6 percent y-o-y for the Volume of Production Index (VoPI) in November. Despite the high production outputs for footwear and wearing apparel which generated a growth of 144.2 percent y-o-y, there was still a sluggish growth in production outputs of the electrical machinery and the basic metal sector which only grew by 10.6 and 12.1 percent y-o-y respectively. The industrial sector was seen to display positive growth since June, a good signal of an improving domestic economy.
    • International reserves climbs higher as the year 2012 ends. Total reserves (less gold) increased from USD71 to 73.3 and 73.5 billion for the moths of October, November and December respectively. According to the statement of Bangko Sentral, the continuous increase in the level of international reserves was due to the foreign exchange operations and investment income of BSP. It is also important to take note that this may be a way of protecting the economy since the other countries are now experiencing a recession.
  2. Policy responses
    • Bangko Sentral ng Pilipinas reduces policy rate the fourth time in 2012; maintains rate in December. In its meeting last October, the BSP decided to cut down its key policy rate by 25 basis points bringing interest rate down to 3.5 percent. The expansionary monetary policy aims to maintain the economy’s robust growth and stable prices. The Monetary Board decided to keep key policy interest rate considering that global economic activity had stabilized in recent months coupled by the fact that domestic economy has maintained its strong pace.
    • Government aims for a low level of budget deficit. Last January, the government announced that it wants to keep its budget deficit at 2% of gross domestic product until the end of the Aquino administration. This goal intends to reduce public debt and be competitive against our neighbor countries to attract more investments. The BSP reported that budget deficit in November was Php11.56 billion, bringing total budget deficit for the year to Php127.3 billion, well below the deficit ceiling of Php279 billion. Total revenue as of November amounted to Php1.41 trillion, which is expected to increase this year with the implementation of the sin tax law.
  3. Other economic news
    • Stocks gather steam as the year starts. The Philippine Stock Exchange (PSE) generated a new record, hitting the 15th peak for the year. The stock market closed last February 5 to 6,470.49, the highest so far this year with a 10.4 percent growth. The PSE index remains the strongest among all the other stock markets in the region. The PSE and the Securities and Exchange Commission will launch a new set of products. PSE will launch Online Service Bureau (OBS) that aims to encourage brokerage houses to offer online trading services to the public. Exchange-traded Funds is another investment instrument that PSE will release.
    • More government infrastructure projects seen underway. Under the Private-Public Partnership program, the government approved 5 infrastructure projects for the fourth quarter of 2012. The board approved the Cavite-Laguna Expressway and NLEX-SLEX connector road which costs P35.58 billion and P25.56 billion respectively. Other projects that were approved are the Pasa Small Reservoir Irrigation Project, Change in Scope of the Second Cordillera Highland Agricultural Resources Management Project (CHARMP II) and the National Community-Driven Project.
    • Philippine remittance hits USD1.92 billion in November. The Bangko Sentral ng Pilipinas announced that cash remittances amounted to USD1.92 billion on November alone, bringing the cumulative amount for the year to USD19.4 billion. Despite the tenuous economic conditions in advanced economies and geopolitical tensions in some Middle East countries, remittance flows remained strong. This could be attributed to the steady deployment of skilled and professional Filipino workers coupled with commercial banks’ continued efforts to strengthen its network with remittance business partners.
    • Unemployment rate eases in the fourth quarter. The National Statistics Office recorded a 6.8 percent unemployment rate in the fourth quarter of 2012, lower than the previous quarter’s 7.0 percent. An estimated number of 2.8 million people were recorded unemployed with most of them in the National Capital Region. Fourth quarter figures are, however, slightly higher than last year’s 6.4 percent.
  4. Future challenges
    • Analysts warn that economy may be in danger of overheating. The performance of the Philippines as one of the fastest growing economies in the region elicits some concern that the high growth may cause high inflation. The BSP, however, assured that the economy can sustain growth without having to face higher inflation. The BSP constantly monitors factors affecting prices and output developments, ready to make essential adjustments in monetary policy.