Economic outlook Strong recovery from the global financial
Economic outlook Strong recovery from the global financial crisis October 2010 Slide 1
Following global financial crisis, a V-shaped recovery in 2010 Sources: NSCB, ATRKE Slide 2
Where did growth come from? — Industry and services +3. 5 +3. 2 +5. 2 +4. 8 +1. 7+1. 5 +0. 2 +1. 2 -1. 7 -0. 6 -0. 5 Sources: NSCB, ATRKE Slide 3
In industry — high growth in manufacturing & construction +4. 8 Slower manufacturing growth in 10 Q 2 offset by stronger contribution from construction +1. 2 -1. 7 Sources: NSCB, ATRKE Slide 4 +5. 2
Recovering economies boosted exports manufacturing Global financial crisis affected economy through plummeting exports Sources: NSCB, ATRKE Slide 5
Elections buoyed public construction and. . . private did well too Avoiding election ban on infra projects Sources: NSCB, ATRKE Slide 6 Earlier recovery probably due to Ondoy reconstruction
Can strong growth be sustained beyond 1 H 10? Yes. . . • because economy not burdened by high debt levels – Households typically are savers, aided by OFW remittances. – Corporate sector has been paying down debt since the Asian crisis of 1997 -98. – Government ran bigger budget deficits in 2008 -09 to stimulate economy during global financial crisis. V-shaped recovery allows withdrawal of fiscal stimulus. • because banking sector not compromised by “toxic assets” can perform its function of extending loans to support growth • But growth likely to be slower in 2 H 10 compared with 1 H 10 due to absence of one-off factors like elections. Slide 7
OFW remittances continue to grow robustly. . . Sources: BSP, ATRKE Slide 8
. . . bolstering private consumption (in contrast to US) Private consumption is about 2/3 and 3/4 respectively of US and Philippine economies Sources: CEIC, ATRKE Slide 9
Weak US growth because of deleveraging Mar 2001 US$20. 2 t Source: CEIC Slide 10 Dec 2008 US$38. 0 t June 2010 US$35. 3 t
In general, according to IMF research “Recoveries from recessions associated with financial crises were found to be slower relative to a typical recovery. ” In advanced economies, recoveries from financial crises feature a near-absence of growth in credit. Behavior of credit and output during recoveries Prakash Kannan, IMF, The lingering effects of financial crises, 19 Nov 2009 Slide 11
Smaller deficit ratio expected (higher in advanced economies) Source: IMF Slide 12
Specific advanced economies with government deficit issues Source: IMF Slide 13
Lower debt ratio (unlike developed countries in general) Source: IMF Slide 14
Specific advanced economies with government debt issues Source: IMF Slide 15
To reduce deficit, aim to grow tax collection with no new taxes Sources: BTr, NSCB, ATRKE Slide 16
Higher GDP growth than advanced economies attracting capital and strengthening peso Sources: CEIC Slide 17
Strong peso dampens inflation—more than 2009 but below trend Sources: NSO, ATRKE Slide 18
Low inflation will tend to keep interest rates low Source: CEIC Slide 19
External demand likely to weaken • • Because of slow growth in OECD, export growth may stall Strong peso will make exports more expensive Strong peso will lessen value of OFW remittances Contribution of exports and OFW remittances likely to decline GDP Greece Italy Philippines Portugal Spain UK US OECD 2006 4. 5 2. 0 5. 3 1. 4 4. 0 2. 8 2. 7 3. 0 2007 4. 5 1. 5 7. 1 2. 4 3. 6 2. 7 1. 9 2. 7 2008 2. 0 -1. 3 3. 7 0. 0 0. 9 -0. 1 0. 0 0. 2 2009 E -2. 0 -5. 0 1. 1 -2. 6 -3. 7 -4. 9 -2. 6 -3. 2 2010 F -4. 0 1. 0 7. 0 1. 1 -0. 3 1. 7 2. 6 2. 7 2011 F -2. 6 1. 0 4. 5 -0. 1 0. 7 2. 0 2. 3 2. 2 2012 F 1. 1 1. 4 4. 5 0. 6 1. 8 2. 3 3. 0 2. 6 2013 F 2. 1 1. 4 4. 5 1. 1 2. 4 2. 9 2. 6 2014 F 2. 1 1. 3 4. 5 1. 2 2. 1 2. 5 2. 8 2. 5 2015 F 2. 7 1. 3 4. 5 1. 2 2. 0 2. 6 2. 4 Source: IMF Slide 20
Domestic demand expected to take up slack • Low inflation and interest rates, strong peso will benefit private consumption and investment • Government will increase investments through public-private partnerships • Foreign direct investment may rise because of attractive growth prospects • All the above could improve domestic employment Slide 21
Optimism likely to translate to improving domestic growth Source: CEIC Slide 22
Public-private partnership projects (may be presented in Nov) 1) Extension of the Light Rail Transit (LRT) Line 1 to Bacoor, Cavite (P 70 b) 1) Extension of the LRT Line 2 to Masinag Junction in Antipolo (P 11. 3 billion) 1) A new airport in Bohol (P 7. 5 billion) 1) A "city terminal" for the Diosdado Macapagal International Airport in Pampanga (cost to be determined) 1) Privatization of the operation and maintenance contract of the Laguindingan airport in Misamis Oriental (cost to be determined) 1) A new airport in Puerto Princesa (P 4. 4 b) 1) An expressway connecting the North and South Luzon tollways (P 21 b) 1) The Cavite-Laguna Expressway (P 10. 5 b) 1) Supply of treated bulk water for Metro Manila (cost to be determined) 1) A new airport in Daraga, Albay As reported in Businessworld Slide 23
Economic forecasts 2007 2008 GDP growth, % change 7. 1 3. 8 NG budget balance, Pb -12. 4 -68. 1 as % of GDP -0. 2 -0. 9 Current account, US$b 7. 1 3. 6 as % of GDP 4. 5 2. 2 International reserves, US$b 33. 8 37. 6 Consumer inflation, % Y/Y 2. 8 9. 3 91 -d T-bill rate, avg, % pa 3. 4 5. 4 Exchange rate, avg, P/US$ 46. 2 44. 4 Slide 24 2009 2010 F Ytd 2011 F 1. 1 7. 0 7. 9 1 H 6. 2 -299 -311 -229 7 M -318 -3. 9 -3. 7 -2. 3 1 H -3. 3 8. 6 9. 3 4. 4 1 H 9. 7 5. 3 4. 9 5. 0 1 H 4. 4 44. 2 53. 5 Sep 59. 6 3. 3 4. 0 4. 1 9 M 4. 5 4. 2 3. 9 Ytd 4. 3 47. 6 45. 5 Ytd 43. 7
Risks to economic forecasts Political risks (1) Execution risks with new government – implementation of lower deficit ratio crucial to spending plans Inflation risks (3) Surge in international commodity prices especially food and fuel (4) Downward stickiness of power rates because of supply issues Growth risks (5) Double-dip recessions in developed countries because of fiscal crisis (6) Early implementation of exit strategies for fiscal and monetary stimulus packages Slide 25
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