economic briefing for the philippine finance association economic briefing-aug 2012-1.… · vi...

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Philippine Economic Outlook

30 August 2012

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The Philippine Economy Top 10 list

1. Philippines is the new “it” economy

2. Domestic driven economy insulates the Philippines

3. Lots of liquidity

4. Supply side – BPO

5. Supply side – Tourism

6. Supply side – Construction

7. Demand side – Consumer Demand

8. Demand side – Infrastructure spending through PPPs

9. Demand side – Election season once again

10. Effect of the Flooding

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Philippines is the new “it” economy

• Philippines has been growing steadily despite global economic weakness.

Source: World Bank Philippine Quarterly Update (July 2012) & CLSA

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Philippines is the new “it” economy

• Investors are taking notice and driving up asset prices, including equity & debt market and

property prices.

PSEi performance

Source: CLSA

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Domestic driven economy insulates the Philippines

Source: World Bank Philippine Quarterly Update (July 2012)

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Comparison of Philippine Supply Breakdown

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• Consumption anchored Demand Side

• Government spending is poised for a rebound after fiscal tightening in 2011.

• Infrastructure will be a key demand driver within the next three years.

Source: World Bank Philippine Quarterly Update (July 2012), NSCB

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• Job creation is up,

but just keeping

pace with the

growth in the

labor force.

• Underscores the

need to create

more jobs over

the long term.

• Hiring industries

include:

• BPO

• Hotels and

Restaurants

• Construction

• Transport

Source: World Bank Philippine Quarterly Update (July 2012)

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Lots of liquidity

• Gross international reserves of US$77bn is now higher than net foreign debt of US$ 63Bn.

• Much publicized US$ 1Bn loan to the IMF.

OFW Remittances Gross International Reserves and External Debt

Source: CLSA

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Lots of liquidity

• Higher income has resulted in

higher savings rates for

Filipinos, with cash from OFW

remittances contributing

greatly to savings.

• National savings rate is at an

all time high of 31%.

• More savings implies more

cash in banks and therefore

more funds available to be

borrowed.

Philippine Savings Rates

Source: CLSA

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Lots of liquidity

• More liquidity results in lower interest rates.

• Flatter yield curve implies that market sees less long term risk and that there is a

willingness to lend longer term.

Philippine Yield Curve

Source: CLSA, ADB

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Supply Side - BPO

• USD 11.25Bn in BPO

revenues in 2011, up

25%.

• 638K employees in the

industry, up 24%.

• CLSA expects dollar

revenues from BPOs to

exceed OFW remittances

by 2015.

• Over a million employees

by 2015.

Philippine BPO Industry

Source: CLSA

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Supply Side - Tourism

• Tourist arrivals hit 3.9Mn in 2011, up 11.2%.

• Strong growth in outdoor, medical, education and retirement tourism.

• Gaming will push the tourism growth in the medium term as Philippines expects to

compete with Macau.

Philippine Tourism Growth (Mn visitors)

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• PAGCOR Entertainment City – The bright new hope of Philippine Tourism?

Source: CLSA

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• PAGCOR Entertainment City – The bright new hope of Philippine Tourism?

Bloomberry’s Solaire Manila – Opening Q1 2013 Belle Grande Manila – Opening Q4 2013

Universal Entertainment’s Manila Bay Resorts – TBD Resorts World Manila Bayshore - 2016

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Supply Side – Construction

• Economic growth also creates growing demand for property for end use and investment.

• Lots of potential for Philippine banks to lend with Filipinos still mainly funding property

purchases through own cash or developer financing.

• There may be a risk of a property bubble developing but the key difference is that property

buyers are not as levered as much as those in the US or Europe.

Source: CLSA

Comparison of Loan to Deposit ratios of banks

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Demand Side – Consumer Demand

• Food accounts for 42% of total consumption followed by Housing & Utilities (10.9%) and

Transport (8.2%).

• Growing spend in leisure goods (Restaurant and hotels, Food & Non-alcoholic

beverages) and Household furnishings in 2011.

% of Real

Consumpt'n (2011)

2011 Real

Growth

Food and Non-alcoholic beverages 42.1% 6.8%

Alcoholic beverages, Tobacco 1.4% 1.7%

Clothing and Footwear 1.7% 4.0%

Housing, water, electricity, gas & other fuels 10.9% 2.9%

Furnishings, HH eqpmt, HH maint 5.7% 6.6%

Health 2.2% 7.5%

Transport 8.2% 3.0%

Communication 5.1% 2.4%

Recreation and culture 2.2% 4.3%

Education 3.2% 5.7%

Restaurants and hotels 4.1% 7.6%

Miscellaneous 13.1% 12.2%

Breakdown of Philippine Consumption

Source: National Statistical Coordination Board

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• Demand growth is broad-based and across major urban centers in the provinces.

• Consumption power in Metro Manila is comparable with that of international developed

economies.

Regional Breakdown of Philippine Consumption

Source: National Statistical Coordination Board, USD conversion at USD-PHP42

in PHP per capita (current prices) 2011 CAGR (09-11)2011

(in USD)

2011*

(USD PPP)Country

Per capita income

(USD PPP)NCR Metro Manila 288,062 8.32% 6,859 12,415 Singapore 59,711

CAR Cordillera 127,614 6.32% 3,038 5,500 Hong Kong 49,137

I Ilocos 61,076 7.18% 1,454 2,632 United States 48,387

II Cagayan Valley 51,100 5.15% 1,217 2,202 Australia 40,234

III Central Luzon 85,186 10.05% 2,028 3,671 UK 36,090

IVA CALABARZON 126,589 7.48% 3,014 5,456 Japan 34,740

IVB MIMAROPA 62,995 5.08% 1,500 2,715 South Korea 31,714

V Bicol 37,526 8.47% 893 1,617 Malaysia 15,568

VI Western Visayas 54,870 8.21% 1,306 2,365 Metro Manila 12,415

VII Central Visayas 86,880 12.03% 2,069 3,744 Brazil 11,769

VIII Eastern Visayas 58,335 4.11% 1,389 2,514 Thailand 9,396

IX Zamboanga Peninsula 57,815 6.75% 1,377 2,492 China 8,382

X Northern Mindanao 83,628 8.21% 1,991 3,604 Indonesia 4,666

XI Davao Region 89,552 8.24% 2,132 3,859 Philippines 4,073

XII SOCCSKARGEN 62,080 7.07% 1,478 2,676 India 3,694

XIII CARAGA 44,472 10.66% 1,059 1,917 Vietnam 3,359

ARMM Muslim Mindanao 26,004 9.11% 619 1,121 Cambodia 2,216

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• Despite fuel price hikes, inflation has been tame and decreasing.

• Noticeably, food price growth has been stable and decreasing due to ample food supply.

Source: World Bank Philippine Quarterly Update (July 2012), NSCB

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Demand side – Infrastructure spending through PPPs

• Economic growth and expected boom in tourist arrivals requires commensurate

infrastructure spending.

• PPP allows the private sector to participate and build up the country’s infrastructure base.

• Potential PHP 189Bn in new projects are in the pipeline.

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Source: DOTC, PPP Center


Daang Hari – SLEX link already awarded

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Source: DOTC, PPP Center


Major Philippine Infrastructure PPP projects

LRT Line 1 South Extension

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Source: DPWH



NAIA Expressway Phase 2

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Source: DPWH


NLEX-SLEX link Cavite-Laguna (CALA) Expressway


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Demand side – Election season once again

• It has been demonstrated that election spending does not generate significantly more

economic activity.

• The economy slows post-election thereby generating neutral economic impact.

Historical quarterly GDP growth (Election season highlighted)

1991-2008

Source: IDEA, NSCB

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Effect of the Flooding – Case of Ondoy & Pepeng

Damage and Losses (PHP Mn)

Recovery and Reconstruction Needs (PHP Mn)

• Trade and Agriculture are

typically the most affected

sectors after a major

typhoon.

• Recovery and

reconstruction spending is

typically spent on housing

and commerce.

Source: Typhoons Ondoy and Ppeng: Post-Disaster Needs Assessment by the Asian Development Bank

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Effect of the Flooding – Case of Ondoy & Pepeng

Estimated Reduction in Growth due

to Ondoy and Pepeng (PHP Mn)

GDP Growth scenarios arising from

Ondoy and Pepeng (PHP Mn)

• Spending on recovery and reconstruction after the typhoon generates economic activity

that softens the economic impact.

Source: Typhoons Ondoy and Ppeng: Post-Disaster Needs Assessment by the Asian Development Bank

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What can we expect?

GDP growth Inflation

2012 2013 2012 2013

Philippine Gov’t 5% - 6% 6% - 7% 3% - 5% 3% - 5%

World Bank 4.6% 5.0% 3.5% 4.0%

ADB 4.8% 5.0% 3.7% 4.1%

IMF 4.8% 4.9% 3.4%* 4.1%*

Summary of Philippine 2012 forecasts

* As of April 2012

economic briefing for the philippine finance association economic briefing-aug 2012-1.… · vi...

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