Philippine Economic Outlook

1
Philippine Economic Outlook

• Dr. Roberto F. de Ocampo
• President
• Makati Shangri-La
• 21 February 2006

2
Outline of Presentation

• 2005 Philippine Economic Performance
• Analysis of Economic Performance
• Outlook for 2006

3
2005 A Challenging Year

• Protracted Political Crisis
• Fiscal Crisis from August 2004
• Escalating Oil Prices
• Sluggish Export Demand
• Slow Recovery from El Nino in 2004

4
Economic Performance Indicators

• Surprising, resilient GDP growth

Growth Rates
Source NEDA
5
Economic Performance Indicators

• Slower growth in most Asian countries

GDP Growth Rates for Selected Asian Countries
Source NEDA, Ateneo
6
Economic Performance Indicators

• Strengthening Peso

Philippine Peso US Dollar Exchange Rate
Source BSP
7
Economic Performance Indicators

• OFW Remittances on the rise

Remittances from Overseas Workers
25 Increase
In Millions of US
Source BSP
8
Economic Performance Indicators

• Budget Deficit under control

RP Government Budget Deficit
In Billions of Philippine Pesos
Source BSP
9
Economic Performance Indicators

• Stock market is rebounding

Philippine Stock Exchange Indicators
In Millions of Philippine Pesos
PSE Composite Index
Source PSE
10
Economic Performance Indicators

• T-Bill spreads falling

3 Month Treasury Bill Rates
Source BSP
11
Economic Performance Indicators

• Inflation easing

Monthly Inflation Rates 2000-2005
Source BSP
12
2006 Looking Up?

• Improved credit ratings outlook
• Increased tax collections from 12 VAT
• Improvement in agricultural outlook
• Better export potential
• Local business optimism

13
2006 Questions Remain

• Are things as good as they seem?
• If things are indeed going well, why is the
  economic growth not being felt by the general
  population?

14
2006 Challenges Remain

• Need to improve investment climate

15
Economic Performance Indicators

• Limited FDI inflows

Net Foreign Direct Investments
In Millions of US
Source BSP
16
2006 Challenges Remain

• Need to improve investment climate
• Currency appreciation may be difficult to sustain

17
Strength of Currency

• Change in BSP Regulations
• Entry of portfolio funds to select stocks in the
  market

18
Economic Performance Indicators

• Return of Portfolio Investors

Net Inflows of Portfolio Investments
In Millions of US
Source BSP
19
Strength of Currency

• Change in BSP Regulations
• Entry of portfolio funds to select stocks in the
  market
• Excess global liquidity looking for Asian
  investments

20
Strength of Currency

• Change in BSP Regulations
• Entry of portfolio funds to select stocks in the
  market
• Excess global liquidity looking for Asian
  investments
• Seasonal surge in OFW remittances

21
Economic Performance Indicators

• Seasonal fluctuations due to OFW Remittances

Philippine Peso US Dollar Exchange Rate
Philippine Pesos
Source BSP
22
2006 Challenges Remain

• Need to improve investment climate
• Strengthening currency may difficult to sustain
• Higher taxes may lower consumer demand

23
Low Overall Competitiveness
24
Why is Growth not Being Felt?

• Slow growth in agriculture
• Falling investments
• Low job generation
• High inflation caused by oil and VAT

25
Potential Growth Drivers

• Improved VAT collections/fiscal reforms
• Infrastructure development
• Power sector privatization
• Mining
• Booming sectors
• BPO / IT outsourcing
• Tourism
• Finance

26
Potential Growth Challenges

• Tax revenue leakage
• Slow infrastructure development
• Opposition to mining investments
• Slow privatization

27
Potential Risks

• Oil shock
• Bird flu pandemic
• Continuing political problems

28
Political Situation

• Philippine Elections in 2007
• Two major political forces at play
• Those pushing for midterm elections
• Those pushing for parliamentary elections
• Both options require at least one year of
  preparation
• Critical date June 2006

29
Outlook for 2006

• Political crisis overhang
• Stable growth
• India as model for development

30
Philippine Economic Outlook

• Dr. Roberto F. de Ocampo
• President
• Makati Shangri-La
• 21 February 2006