an evaluation on the philippine economy using the different economic indicators

7/28/2019 An Evaluation on the Philippine Economy Using the Different Economic Indicators

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An Evaluation on thePhilippine Economy using

the different EconomicIndicators

(first quarter of 2012)


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A. Key Economic Developments

Philippine macroeconomic fundamentals remained solid during the review quarter.

Real gross domestic product (GDP) growth was higher-than-expected as exports recovered andpublic spending gained momentum. Household expenditure also continued to be a solid driver of outputgrowth, supported by the steady inflow of overseas Filipino (OF) remittances and modest improvements inlabor market conditions. Meanwhile, the cash operations of the national government (NG) yielded awider deficit as government spending for infrastructure projects and social programs increased amid

higher revenues. Inflation was still within target with the steady deceleration of headline inflation duelargely to lower food prices.

Liquidity conditions remained adequate to support economic activity. Demand for money or M3continued to grow owing to sustained increase in net foreign assets (NFA), particularly of the BSPs ownNFA position.

Banking lending has also been growing steadily at double-digit rates, supported by the robustexpansion in loans for production activities. Meanwhile, the BSP reduced its key policy rates by 50 basispoints (bps) in the first quarter of 2012 as the inflation outlook stayed subdued, with inflation expectationswell-anchored and the external environment increasingly fragile.

The quarter in review also saw improvements in domestic financial market conditions amidgrowing uncertainties due to the deteriorating sovereign debt problem in Europe. The accommodative

monetary policy stance in most advance economies (AEs), optimistic outlook on the Philippine economythe BSPs consecutive policy rate cuts, and continued resilience of the Philippine banking systemcontributed to favorable market sentiment. The local stock market index rallied strongly during thereview period, while spreads on Philippine sovereign debt narrowed relative to their previous quarterlevels, reflecting reduced risk aversion. The Philippine banking system remained sound, marked by agrowing resource base, improving asset quality, and more-than adequate capitalization.

At the same time, the healthy external payments position of the country continued to be a sourceof resilience for the economy. The balance of payments position remained in surplus in Q1 2012 atUS$1.2 billion, albeit lower by 64.4 percent compared to the surplus in the same quarter a year ago. Asurplus was recorded in the current account due mainly to higher inflows from OF remittances andbusiness process outsourcing (BPO) services transactions. The net inflows in the capital and financial

account, meanwhile, emanated from increased foreign direct investments. Consequently, the grossinternational reserves (GIR) sustained its uptrend and were sufficient to cover 11.4 months worth of

imports of goods and payments of services and income. The peso likewise maintained its relative strengthon the back of robust inflows of OF remittances, portfolio investments, and foreign direct investments,amid ongoing fragilities in the global economy.

The Philippine economy grows strongly. Real GDP increased by 6.4 percent in Q1 2012 from 4.9percent in the same quarter in 2011.

The services sector continued to buoy growth on the production side, while householdconsumption led the expansion on the expenditure side. At the same time, the countrys real Gross

National Income (GNI) grew by 5.8 percent after increasing by 3.5 percent in Q1 2011. The accelerationin the GNI growth was due largely to the strong inflows of OF remittances.

Labor market conditions improve slightly. Based on the results of the January 2012 Labor ForceSurvey (LFS) of the National Statistics Office (NSO), the unemployment rate declined slightly from 7.4percent in

Q1 2011 to 7.2 percent as employment levels grew by 3.0 percent year-on-year (y-o-y) to 37.4million. Employment growth was broad based with the industry sector posting the highest growth at 4.8percent. Likewise, underemployment declined to 18.8 percent from 19.4 percent in the same quarterin2011. The agriculture sector accounted for 43.8 percent of the 7.0 million underemployed persons duringthe period in review.

NG cash operations yield a wider deficit. The cash operations of the NG yielded a deficit of P33.9billion in the first quarter of 2012, larger than the P26.2 billion deficit incurred in the same period in 2011


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but significantly lower than the programmed deficit of P82.8 bil lion for the review quarter. This tookplace as total revenues surpassed both its year -ago and programmed levels on account of highercollections of import duties by the Bureau of Customs (BOC). Meanwhile, total expenditures grew by 13.1percent relative to its year-ago level but remained below the P440.6 billion programmed expenditures forthe quarter. Nonetheless, the bulk of the expenditures for the review period went to infrastructure spendingand capital outlays.

Lowerfood prices drive the decline in headline inflation. The y-o-y headline inflation deceleratedto 3.1 percent in Q1 2012 compared to the quarter-ago and yearago rates of 4.7 percent and 4.5 percent,

respectively. This was due largely to lower prices of most food items, notably vegetables, sugar, rice, andoils, as domestic supply remained adequate. Meanwhile, slower price increases in non-food itemsowingmainly to lower electricity ratesalso pulled down inflation. The official core inflation measure, alongwith all alternative measures of core inflation estimated by the BSP, likewise fell during the quartersuggesting a relative absence of broad-based inflationary pressures.

Domestic liquidity sustains growth, albeit at a slower pace. Demand for money or M3 growthdecelerated to 5.6 percent y-o-y as of end-March 2012 from 6.3 percent as of end- December 2011. Thiswas due to the slower growth in NFA combined with the decline in net domestic assets (NDA). Theweaker NFA growth could be traced to the continued decline in the NFA of other depository corporationsas banks foreign liabilities rose while their foreign assets decreased.

Meanwhile, NDA continued to decline, although at a slower pace, as the net other items account

posted a lower annual growth during the quarter. Credits extended to the private sector rose steadily,consistent with the strong growth of bank lending to the productive sectors of the economy.

The BSP cuts policy rates during the quarter. The BSP reduced its policy interest rates twice by atotal of 50 basis points (bps) in Q1 2012 on the Monetary Boards (MB) assessment of a benign inflationoutlook, with weaker global growth prospects expected to temper the rise in commodity prices. Baselineforecastsduring the quarter showed inflation settling within the lower half of the 3-5 percent target rangefor 2012-2013 while global economic conditions were expected to stay subdued.

On 2 February 2012, the MB also approved in principle three operational adjustments in the BSPsreserve requirement policy scheduled for effectivity on the reserve week beginning on 6 April 2012. Theseare mainly operational changes and were intended to increase the effectiveness of reserve requirement as amonetary policy tool, simplify its implementation, and improve the monitoring of banks compliance.

Primary market interest rates rise. Interest rates of government securities (GS) in the primarymarket rose in Q1 2012 as investors shifted to longer-dated papers due to expectations of higher near-terminflation owing to the uptick in global oil prices. The higher T-bill rates also reflected the NGs efforts toalign primary market rates with the rates in the secondary market. Tracking movements in the primarymarket, secondary market yields for shorter dated securities likewise increased as of end-March 2012while those for long-dated securities declined, resulting to a flattening of the domestic yield curve.Meanwhile, other market interest rates, i.e. interest rates on time deposits, saving deposits, bank lending,and interbank call loans, eased during the review quarter following the reduction in the BSPs key policy

rates in January and March 2012.The Philippine banking system continues to gain ground, marked by sustained loan growth

improving asset quality, and rising capital adequacy ratios. Commercial banks loans have been growing

steadily at double digit rates since January 2011, underpinned by the brisk expansion in loans forproduction activities, which comprised more than four fifths of commercial banks total loan portfolio. Atthe same time, the total resources of the banking system rose by 4.8 percent y-o-y to P7.5 trillion as ofend-March 2012 due largely to the growth in currency and deposits, indicative of the publics continuedtrust in the banking system. The NPL ratio of the banking system sustained its down trend, reflectingbanks prudent lending practices and initiatives to improve asset quality. The systems capital adequacyratio (CAR) of over 16 percent remained comfortably above the BSPs and the Bank for InternationalSettlements (BIS) minimum requirements.

The local stock market remains bullish. The local stock index trended upwards to average 4,820.7index points, higher by 13.7 percent than the 4,239.2-index point average in Q4 2011. Optimism on the


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recovery of the US economy, combined with favourable manufacturing data from Germany and China,raised investors risk appetite during the period. On the domestic front, the BSPs policy rat e cuts due tofavorable inflation outlook, the NGs plans to increase its spending to spur growth, and optimistic outlook

on local corporate earnings also spurred market sentiment.The risk premium on Philippine debt papers declines. Spreads on Philippine debt papers

narrowed in Q1 2012, reversing the previous quarters widening trend, as positive developments in majorglobal markets buoyed demand for emerging market (EM) assets such as ROPs. The EMBI+ Philippinespreads, or the extra yield investors demand to hold Philippine debt securities over US Treasuries

narrowed to 204 bps from previous quarters average of 237 bps. Similarly, the credit default swap (CDS)spread, or the cost of insuring the countrys 5-year sovereign bonds against default, tightened to 163 bpsfrom 203 bps. Meanwhile, the countrys sovereign credit rating was unchanged in Q1 2012.

The BOP position remains in surplus. The BOP amounted to US$1.2 billion in Q1 2012, albeitlower by 64.4 percent compared to the US$3.5 billion surplus in the same quarter a year ago. The currentaccount posted a surplus of US$882 million, equivalent to 1.6 percent of GDP, owing to net receipts incurrent transfers and services, which more than compensated for the higher net payments in the incomeaccount and the widening of the trade-in-goods deficit.

Likewise, the capital and financial account yielded a net inflow of US$962 million, althoughdown by 73.7 percent than the US$3.7 billion net inflows recorded in the same period last year. Netinflows in the direct investment and capital accounts helped support the countrys BOP position

International reserves continue to accumulate. The build up in the countrys gross international reserves(GIR) continued as of end-March 2012, albeit at a slower pace of 15.4 percent y-o-y, to reach US$76.1billion. At this level, the GIR was sufficient to cover 11.4 months worth of imports of goods and

payments of services and income. This GIR level was also equivalent to 10.9 times the countrys short -term external debt based on original maturity and 6.4 times based on residual maturity. The increase in theGIR level as of end-March 2012 was driven by inflows from the foreign exchange operations and incomefrom investments abroad of the BSP which were offset partially by payments for maturing foreignexchange obligations of the NG.

Latest debt ratios point to manageable external debt situation. As of end-March 2012, theoutstanding BSP approved/registered external debt stood at US$62.9 billion, up by 1.9 percent and 3.2percent relative to the previous quarters and previous years levels, respectively. Medium- and long-

term (MLT) loanscontinued to comprise the bulk of the countrys external debt profile, thus enabling amore manageable debt servicing over time.

The external debt to GDP ratio, an indicator of the countrys capacity to repay long -term foreignobligations, improved to 20.7 percent as of end-March 2012 from 20.8 percent as of end-December 2011.Likewise, the debt service ratio (DSR), which measures the sufficiency of foreign exchange to meetcurrently maturing obligations, declined to 7.8 percent from 8.5 percent in end -December 2011.

The peso continues to appreciate. The peso remained resilient amid escalating strains in the euroarea and prevailing fragilities elsewhere in the global economy. The peso averaged stronger atP43.05/US$1 during the review period from the P43.46/US$1 average in Q4 2011. The sustained inflow ofOF remittances, net portfolio investments, and foreign direct investments (FDI) remained the fundamentaldrivers of the pesos resilience. Despite its continued firmness, the peso gained external price

competitiveness against competitor countries in both the broad and narrow series as the narrowinginflation differential more than offset the nominal appreciation of the peso relative to these baskets ofcompetitor countries.

Recent developments in the global economy point to continuing fragilities. In the US, real GDPgrew at annual rate of 2.0 percent in Q1 2012 as private investment and inventory build-up continued toexpand. Growth prospects in the euro area, meanwhile, further dimmed with the 0.1 percent outputcontraction during the quarter. Chinas real GDP growth also slowed down to 8.1 percent from the 8.9

percent expansion in the previous qua rter. By contrast, Japans economy grew by 2.0 percent as bothprivate and public consumption grew, reflecting reconstruction spending on housing and other buildingwork in the devastated north-eastern region.


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B. Challenges and Policy Directions

Real Sector Aggregate Supply and Demand

The Philippine economy gained significant headway during the first quarter of 2012.Real GDP increased by 6.4 percent, faster than the 4.9 percent growth recorded during thefirst quarter of 2011. The services sector continued to buoy growth on the production side,while household consumption led the expansion on the expenditure side. Similarly, thecountrys real GNI grew by 5.8 percent during the first quarter of 2012 after growing by 3.5

percent in the same quarter a year ago. The acceleration in the GNI growth was due largelyto the continued strong inflows of OF remittances. Production Side

The services sector, which comprised 56.2 percent of GDP, grew by 8.5 percent inQ1 2012 from 3.6 percent in the same period in 2011, and contributed 4.7 percentage points(ppts) to GDP growth. The strong growth in the sector was propelled by the expansion in allsub-sectors, led by trade and repair of motor vehicles, motorcycles, personal and householdgoods, other services and real estate, renting and other business activities.

Philippine economy grows strongly.Services sector continues to boost output expansion.The industry sector continued to grow, albeit at a slower pace of 4.9 percent during

the first quarter of 2012 from 7.3 percent during the same period in 2011. The industrysector, which accounted for 32.2 percent of total GDP, contributed 1.6 ppts to the GDPgrowth for the quarter, supported largely by manufacturing output. Manufacturingincreased by 5.7 percent on increased domestic consumption and production of processedexportables. However, mining and quarrying contracted by 11.0 percent after growing by32.2 percent in the same quarter ayear ago as gold and non-metallic productionsdeclinedsignificantly.

The growth in agriculture, hunting, forestry, and fishing (AHFF) sector likewiseslowed down to 1.0 percent during the quarter in review from 4.4 percent the year before.Nonetheless, the sector, which comprised 11.6 percent of total output, contributed 0.1 ppt toGDP growth. The fall in corn, coconut, banana, and mango production due to adverse

weather conditions underpinned the slowdown in AHFF. Expenditure Side

Household spending, accounting for 70.1 percent of GDP, continued to expand in thefirst quarter of 2012 by 6.6 percent from 5.9 percent a year ago, due to improvedemployment conditions and generally low and stable prices. Increased consumption of foodand non-alcoholic beverages (6.3 percent) buoyed mainly the overall growth of the sector.

Improvements in external demand supported the recovery of the countrys exports.Total exports went up by 7.9 percent in Q1 2012, as merchandise exports expanded onaccount of robust exports of electronic components, which accounted for 62.8 percent oftotal merchandise exports.

Government consumption also rebounded strongly during the quarter, driven by the

increased spending for maintenance and other operating expenditures (MOOE) of thegovernment, as well as the continued spending on a number of social protection programs ,such as conditional cash transfers (CCTs). Labor and Employment

Based on the results of the January 2012 Labor Force Survey (LFS) of the NationalStatistics Office (NSO), the unemployment rate declined slightly to 7.2 percent from the 7.4percent recorded in the first quarter of 2011 (Table 2), but was higher relative to previousquarters unemployment rate of 6.4 percent.

*Unemployment falls relative to previous year. The level of employment grew by 3.0percent y-o-y to 37.4 million, after contracting by 0.8 percent decline in the comparable


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period in 2011. Employment growth was broad-based, with the industry sector postingthe highest growth at 4.8 percent, while the services and agriculture employment grewby 3.3 percent and 1.9 percent, respectively. Of the 37.4 million total employed persons,52.7 percent were employed by the services sector, while the agriculture and industrysectors employed 32.6 percent and 14.7 percent, respectively.

The ratio of the underemployed to total employed persons declined to 18.8 percentfrom 19.4 percent in the same quarter in 2011 and 19.1 percent in Q4 2011. The agriculturesector accounted for 43.8 percent of the 7.0 million underemployed persons during the

period in review, while the services and industry sectors comprised the remaining 40.5percent and 15.7 percent of the total, respectively.

Classified by status of employment, employment rate increased among wage andsalary workers (to 3.3 percent from -1.2 percent) and employers in own-family operatedfarm or business (to 1.4 percent from -13.4 percent). Meanwhile, employment rate amongthe workers without pay in own-family operated farm or business decreased to 4.9 percent(from 7.1 percent) and to 2.0 percent (from 4.3 percent) for self-employed workers.

B. Fiscal Sector National Government Cash Operations

The cash operations of the NG yielded a deficit of P33.9 billion in the first quarter of2012. This level was larger than the P26.2 billion deficit incurred in the same period in

2011 but lower than the programmed deficit of P82.8 billion for the review quarter.Total revenues for the review quarter reached P361.0 billion, higher than both the

year-ago and programmed level of P323.1 billion and P357.8 billion, respectively, duemainly to higher collections of import duties by the Bureau of Customs (BOC). Taxcollections, which constituted 83.7 percent of total revenue generated during the reviewperiod, amounted to P302.3 billion, 13.8 percent higher than the year -ago level but 5.1percent lower than the programmed tax revenue of P317.6 billion.

Meanwhile, total expenditures amounted to P394.9 billion in the first quarter of2012, 13.1 percent higher than the P349.3 billion expenditures incurred a year ago and10.4 percent lower than the P440.6 billion programmed expenditures for the quarter. Bulkof the expenditures for the review period was directed to infrastructure spending and

capital outlays amounting to P209.9 billion, consistent with the observed notable rise inpublic construction.

The NGs net financing rose to P162.5 billion for the first quarter of 2012,significantly higher than the programmed level of P37.2 billion for the quarter.

The net financing was sourced mainly from domestic borrowings, which amounted toP95.7 billion. Meanwhile, external borrowings amounted to P66.8 billion. The net financingwas based on a gross financing mix ratio of 75:25, in favor of domestic sourcing.

Moving forward, the NG will calibrate the fiscal program to reflect the impact on theNGs revenue collection efforts of the various revenue-eroding measures2 enacted into lawand the need to provide temporary stimulus for a solid economic recovery. The NG will alsocontinue to pursue fiscal consolidation in the medium term by supporting legislative

initiatives to raise revenues and widen the tax base while pursuing parallel efforts toreinforce tax administration and ensure an efficient expenditure management program.

C. Monetary Sector Prices

The y-o-y headline inflation decelerated to 3.1 percent in Q1 2012 compared to thequarter ago and year-ago rates of 4.7 percent and 4.5 percent, respectively.

The decline in headline inflation was due largely to lower prices of most food items,notably vegetables, sugar, rice, and oils as supply remained adequate. Meanwhile, slowerprice increases in non-food items can be traced to lower electricity rates.


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Meanwhile, core inflation, which excludes certain food and energy items to measuregeneralized price pressures, eased to 3.5 percent in Q1 2012 from 4.5 percent in theprevious quarter and 4.0 percent in Q1 2011.

Ample domestic supply of selected food items, particularly sugar, vegetables, rice,and oils led to the continued deceleration of food inflation.

Similarly, non-food inflation decreased to 3.7 percent in Q1 2012 from 4.4 percent inthe previous quarter, but was steady compared to Q1 2011. Lower inflation for electricity,gas, and other fuels due to reduced electricity charges supported the decline in non -food

inflation.D. Financial Sector

The Philippine banking system continued to gain ground during the quarter, markedby sustained loan growth, improving asset quality, and increasing capital adequacy ratios.The systems CAR of over 16 percent remained comfortably above the BSPs and the BISs

minimum requirements.The total resources of the banking system rose by 4.8 percent y-o-y to P7.5 trillion as

of end-March 2012 (Table 8). The increase could be traced to the growth in currency anddeposits, indicative of the publics continued trust in the banking system.

Local stocks trend upwards on optimism about the recovery of the US economy.Market capitalization increases.

Major markets in the region post gains.Exports of goods gradually pick up.Importsof goods registered a modest growth of 4.7 percent to US$16.7 billion in Q1 2012 due tohigher purchases of capital goods and mineral fuels and lubricants indicating the continuedexpansion of domestic economic activity Exchange Rate

Trends in the Dollar-Peso Rate [The peso appreciates amid prevailing globaleconomic fragilities.]

The peso remained resilient amid escalating strains in the euro area and prevailingfragilities elsewhere in the global economy. The peso averaged stronger at P43.05/US$1from the P43.46/US$1 average in the fourth quarter of 2011.18 On a y-o-y basis, the pesoappreciated by 1.7 percent from the P43.79/US$1 average in the first quarter of 2011. The

sustained inflow of OF remittances, net portfolio investments, and FDI remained thefundamental drivers of the pesos resilience.

[Source: BSP Report for the first quarter of 2012]

My Evaluation based from the aforementioned report of the Bangko Sentral ng Pilipinas

(BSP) for the first quarter of the year

The Philippine economy was off to a strong start in 2012. RealGDP rose by 6.4 percent in the first quarter of the year, surpassing both

market expectations and government targets. For this said year [pertaining to its first quarter], our

country felt a bullish and cheerful economy as evidently shown by the hike up

of our countrys GDP amounting to 6.4 %. Consequently, weve experienced

a better financial position and little by little we can spend a higher amount

unlike for the quarters of the concluded year. Employment level also

increases as a result theres a reduction of the number of unemployed

Filipinos. Lower rate of the inflation is of a big help for us consumers


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considering the purchasing power our penny in our pockets can afford during those we fee

like buying of goods, we can consume of greater quantity and our saving capacity do also

increase thinking that the money we earned do increase due to an improved employment

conditions. On the suppliers side, they can expand their respective businesses so long that

there is minimization the expenses they shall incur in the continuance of their business

operations; higher investment rate is also at hand, thus a higher capability of purchasing new

units or capital boosting output production. On the governments side, our government can

now support programs and activities that will be extended to its constituents as a sustainingfactor both beneficial for the parties involved as can revealed of an increase in its revenues.

On the banking system per se an stability and continued progression was felt.

*To sum it up, 2012 was indeed of a great change and of a cheerful economy status of our

country. Economic growth is what we can spell out, while our countrys progress toward a

sustained recovery appears to be on track, potential risks and challenges to the economic

outlook still remain. So far, its a job well done for our country, a big round of applause for

all of us.


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A comparison on the economic activities for

the years: 2010, 2011, 2012Stellar growth in 2010, Sluggish in 2011, Bullish in 2012

2011 domestic economy tepid at 3.7%. The Philippine domestic economy grew by 3.7 percent in 2011almost half of its 7.6 percent growth in 2010. The Philippine domestic economy shrunk to 3.7 percent in2011, after a stellar growth of 7.6 percent in 2010. Growth was mainly undermined by the severe stateunderspending as well as the frail external environment. Outlook for 2012 is relatively sanguine with thegovernment hinging its optimism on robust consumer demand and a more vigorous public spendingwith a Real GDP rose by 6.4 percent in the first quarter of the year, surpassing both marketexpectations and government targets

Gross national income (GNI) likewise slumped to 2.6 percent from 8.2 percent in 2010. Thisresulted from the significant contraction of net primary income (NPI), which slowed to a negative 0.9percent, a turnaround from the 10.0 percent growth in 2010.

Services lead growth. Only the service sector consistently contributed to the economy during all fourquarters of 2011. Services contributed 2.8 percentage points to total GDP. The sectors growth was led

by real estate (7.7%), other services (6.7%) and financial intermediation (6.7%). Brisk demand forresidential and office spaces in 2011 sustained the expansion of real estate while other services wassupported by sewage and refuse disposal (8.7%), and hotels and restaurants (8.1%), among others.Financial intermediation was beefed up by insurance and nonbanks. Insurance grew by 12.7 percentwhereas nonbanks was boosted by the stock market, with the Philippine Stock Exchange Index (PSEi)

ending at 4,371.96 points, 4.0 percent higher than in 2010. Agri cultur e tri ps in the 4th quarter. Agriculture grew at a significantly faster pace of 6.2 percent in the

first half of the year but adverse weather conditions in the second semester got in the way of itscontinued growth. NEDA estimated that the damages caused by typhoons Pedring, Quiel and Sendongrepresent about 1.5 percent of the fourth quarters GDP. Palay, in particular, suffered a negative 8.7

percent growth in the last quarter after posting double-digit growth in the first three quarters of 2011Corn likewise suffered contractions in the last two quarters of 2011. Also affected by the prejudicialweather condition is fishing. Aggravating the already low fish stock was the massive fish kill inPangasinan and Batangas.

I ndustry weakens. Industry started off robustly, recording a 7.3 percent growth in the first quarter. Thiswas short-lived however, as it eventually contracted by 2.3 percent in the second quarter and only

slightly recovered during the third and fourth quarters at 0.8 percent and 2.5 percent, respectively(Figure 1). The sectors unimpressive full-year growth of 1.9 percent was mainly due to the poorperformances of construction, manufacturing, and mining and quarrying. Severe governmentunderspending resulted in the contraction of public construction by 27.0 percent and consequentlyturned around the construction sectors growth from 14.3 percent in 2010 to negative 6.4 percent in

2011. Manufacturings growth, on the other hand, was mainly fettered by the weak demand for exports

while mining and quarrying was weighed down by lower production of gold and crude oil, includingnatural gas.


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Household spending bolsters demand. On the demand side, household spending again proved to be themain growth driver, expanding by 6.1 percent, even higher than in 2010. This expansion was supportedby remittance inflows, the slow appreciation of the peso, and the benign inflation. NEDA also attributedthe increase in household consumption to the continued implementation of the governments conditional

cash transfer (CCT) program. In contrast to the robust growth of consumption spending, governmentexpenditures contracted by 0.7 percent from a positive growth of 4.0 percent in 2010.

Even as public construction rebounded with a considerable 50 percent growth in the fourth

quarter of 2011, it was insufficient to manifest an increase in government spending and capital formationfor the whole year. From a programmed expenditure of PhP1.7 trillion, actual state spending for 2011was 9.0 percent lower at PhP1.6 trillion. The process of introducing reforms in budget management andexecution processes hindered actual spending in 2011. On the other hand, exports continued itsdowntrend, posting a negative 3.8 percent, with merchandise exports contracting by 5.3 percent, andnon-factor services slowing to 3.4 percent. Export growth was dragged down largely by the low globaldemand and the supply chain disruptions caused by the floods in Thailand, among others. As a result ofthe lukewarm export growth, import growth deteriorated to 1.9 percent from 2010s 22.5 percent.

Headline inf lation is within target. Headline inflation averaged 4.8 percent in 2011, well within the 3.0-5.0 percent inflation target for 2011 but higher than the 3.8 average recorded in 2010. A rise in the prices

of food items had been recorded mainly due to the adverse effect of typhoons on agricultural foodsupplies. Core inflation,3 on the other hand, averaged 3.6 percent.

I nvestment in f lows stil l r ecorded but at l ower levels. Latest data showed that in 2011, net foreign directinvestments totalled US$782 million, lower by 38.5percent from that recorded for the same period in2010.Much of the equity investments were channelled towards financial and insurance activities, realestate, and manufacturing.4 However, there was a considerable capital flight from the mining andquarrying sectortotalling US$242.6 million.

In terms of foreign portfolio investments, the Bangko Sentral ng Pilipinas reported a net inflowamounting to US$4.1 billion. This represents an 11.5 percent decline from the US$4.6 recorded in 2010.

Higher 2011 GIR. Gross international reserves (GIR) level as of end-December 2011 stood at US$75.1billion, higher by US$12.7 billion compared to the end-December 2010 GIR. The rise in GIR levelsresulted from the strong inflow of overseas Filipino workers (OFW) remittances, business processoutsourcing (BPO) services receipts, and direct and portfolio investments, among others. Thepreliminary end-December 2011 GIR could cover 11.1 months worth of imports and is equivalent to10.5 times the countrys short-term external debt based on original maturity (6.8 times based on residualmaturity).

F iscal positi on narr ows. The 2011 fiscal deficit of the national government hit PhP197.8 billion, 37.1percent smaller than that posted in 2010. The figure accounted for only 65.9 percent of the programmedPhP300 billion (3% of GDP) deficit for the year.

Cumulati ve revenue coll ection increased by 12.6 percent and amounted to PhP1.36 tri ll ion in 2011. NG debt to GDP ratio improves. National government (NG) debt stood at PhP4.9 trillion as of

December 2011. Of this amount, PhP2.08 trillion (42%) is owed to foreign creditors. Domestic debtincreased by PhP155 billion from 2010 to 2011, as the government issued more Treasury bills and bondsthat it redeemed during the period.

Similarly, foreign debt increased by PhP77 billion or 3.89 percent at the end of 2011 fromPhP1.999 trillion at the end of 2010. In 2011, government debt was equivalent to 50.9 percent of GDP,the lowest ratio since 1998 when the ratio fell to 48.1 percent.

Unemployment down to 7%. The countrys labor force numbered at 61.9 million in 2011. Of thisnumber, 2.8 million were unemployed registering an unemployment rate of 7.0 percent. Moreover, the


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service sectors share of total employment increased from 51.8 percent in 2010 to 52.1 percent.Agriculture accounted for 33.0 percent of the employed while industrys share was 14.9 percent.

Although the economy managed to generate more than one million jobs in 2011, the quality ofemployment is still a concern given the substantial increase in the underemployment rate as well as inthe number of unpaid family workers. Latest data showed that the underemployed numbered at 7.2million.

Growth Prospects and Risks for 2012: projects

Because the housekeeping task of reforming government processes and plugging expenditure leakshave kicked off in 2011, public spending is seen to be fast-tracked in 2012. In fact, to signify the fast-trackingof budget execution, the Department of Budget and Management already released 72 percent or PhP786.6billion of the PhP1.092 trillion new appropriations under the national budget. In terms of capital outlay, theagency has released 72 percent or PhP150.2 billion of the PhP208.3 billion allocation for capital outlay.6 Asidefrom the faster process of budget execution, PhP72 billion worth of projects under the DisbursementAcceleration Program is carried over from 2011.7

Furthermore, after much delay, it is expected that the implementation of the Public-Private Partnership(PPP) program will be fast-tracked this year. The government bagged its first PPP project, the Daang Hari-

South Luzon Expressway (SLEX) Connector, only in December 2011.

For 2012, sixteen projects under the PPP program are in the pipeline with an estimated cost of PhP140.8billion. The government has allotted PhP19.6 billion in counterpart funds for the PPP program this year, anincrease from 2011s PhP12.5 billion.9

The government is particularly bullish on having higher investments in 2012 as investment pledgesregistered with the Philippine Economic Zone Authority surged by 47 percent in the first two months of theyear. The PSEis breaching of the 5,000 mark for the first time in March 2012 is also said to bode well for the

equities market.

Likewise, private construction, particularly in the property subsector, is anticipated to remain robust

given the upward momentum in office demand and investments in low-cost housing. Demand for commercialspaces will continue to be buoyed by the BPO sector, the revenues of which are slated to grow even further thisyear by 20 percent. The residential sector is also expected to receive continued support by the robust demandfrom families of overseas Filipinos. Consumer spending will similarly be sustained by the favorable inflationoutlook.

an evaluation on the philippine economy using the different economic indicators

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