Fitch affirms Philippine economy’s stable outlook

Fitch Ratings has affirmed the Philippine economy’s stable outlook with a BBB rating.

The sovereign ratings balance a favourable growth outlook, government debt levels, a net external creditor position and policies geared towards maintaining macro-stability against lower income per capita and weaker governance and business environment.
Fitch says a strong macroeconomic performance remains a rating strength, notwithstanding overheating risks.

Real GDP expanded by 6.8% in 1Q18 from 6.7% in 2017, supported by strong growth in investment and private consumption.

Growth in investment was driven by a pick-up in the public-infrastructure program ast domestic demand to maintain strong growth of 6.8% in both 2019 and 2020, which would maintain the Philippines’ place among the fastest-growing economies in the Asia-Pacific region.

Fitch says the Philippines’ estimated five-year average real GDP growth of 6.5% at end-2018 will remain far above the current ‘BBB’ median of 3.1%. However, the economy faces some overheating risks, evident from a recent rise in inflation, rapid credit growth and a widening trade deficit, although steps taken by the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy may contain these risks.

Headline inflation increased to 4.3% yoy in 1H18 from 2.9% in 2017. Fitch expects consumer price inflation to average around 4.4% in 2018, above the BSP’s official band of 2%-4%, due in large part to higher commodity prices and a recent increase in excise taxes associated with the tax reform package passed at the end of last year.

Fitch expects the  the Philippines’ current account deficit to widen to -1.1% of GDP in 2018 from -0.8% of GDP in 2017, driven by continued strong growth in the import of capital goods associated with the government’s public-investment programme and higher oil prices.

The business-process outsourcing sector’s continued strong receipts and steady remittance inflows are offsetting these factors and helping to contain a further widening of the current account deficit. We expect the deficit to widen further to around -1.3% of GDP in 2019 and 2020. Risks to this outlook stem from a further acceleration of imports.

Foreign direct investment (FDI) inflows rose to USD10.0 billion in 2017 from USD8.3billion in 2016. Approved FDI investments declined from a year ago but realised FDI inflows rose by around 43.5% yoy in 1Q18 to USD2.2 billion, reflecting still-strong foreign investor sentiment.

High foreign-exchange reserves continue to act as an important buffer to external shocks. Foreign-exchange reserves had fallen to USD77.7 billion by end-June 2018 from USD81.6 billion at end-2017 due to portfolio outflows and intervention by the BSP.

However, reserves continue to cover around seven months of current external payments (CXP). In addition, the BSP’s flexible exchange-rate policy, evident from a depreciation of the peso by around 6% against the US dollar over the past year, should prevent a sharp decline in reserves.

 

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Filipino millenials are less impressed with Philippine politicians – Deloitte

Filipino millennials are less impressed with politicians with 52 percent believe political leaders currently have a negative impact on society, while 43 percent believe politicians are having a positive impact.

The latest Deloitte’s 2018 Millennial Survey revealed that in 2017, 91 percent of Filipino millennials felt that the Philippine government made a positive impact in solving the issues they were most concerned about.

When it comes to the economy, Filipino millennials are less upbeat, with 78 percent of them expecting the Philippines’ overall economic situation to improve this year – an 11-point drop from last year’s survey.

The percentage of Filipino millennials who expect the country’s overall social and political situation to improve in the next 12 months contracted even more, from an impressive 84 percent in 2017 to 68 percent this year.

This result may be related to the similarly waning confidence Filipino millennials have on businesses and the government.

In 2017, 94 percent of Filipino millenials believed businesses have a positive impact on wider society, down to 74 percent this year.

Forty-seven percent of Filipino millennials say businesses should focus on providing employment, and 40 percent of them believe their employers are actually prioritizing this.

When it comes to improving society, however, only 23 percent of Filipino millennials believe their organizations are working on this goal, even as 42 percent of them say businesses should prioritize it.

Deloitte’s survey noted a gap when it comes to protecting the environment, with 32 percent of Filipino millennials believing businesses should play an active role in doing so, but only 16 percent saying their employers prioritize it.

An overwhelming majority of Filipino millennials expect to be financially better off  with 86 percent and happier  with 80 percent than their parents, an improvement from last year’s 80 percent who expected to be financially better off and 76 percent who expected to be happier.

 

This improved sentiment is mirrored globally, suggesting that even millennials in developed markets have found reasons to feel more optimistic about their future.

Convenience stores lead growth in small store format

Convenience stores are leading the expansion of the small store format concept in the Philippines, showing a growth of 20% in 2017 and 15% in 2016.

Nielsen’s latest shopper trends report noted that in 2013, there were only more than 1,620 convenience stores in the country against 4,300 in the first quarter of 2018.

Small store formats are modern trade self-service stores occupying an area measuring 150-500 square meters. These stores cater to more frequent shopping trips with smaller baskets. Convenience stores, small supermarkets, petrol stores and mini-marts all fall under the small store category.

Big retailers are not far behind in adopting the small store format. In the last five years, small store formats of supermarket chains have grown close to 220 stores in 2013 to more than 410 stores in the first quarter of 2018.

The growth of small format stores is bolstered by the increasing influence of four global megatrends which are supporting the growing consumer demand for faster and more convenient shopping experiences—urbanization, women joining the workforce, shrinking household size, and the rise of eating out. The robust business process outsourcing (BPO) segment also stimulates the growth of this retail channel.

“Retailers in the past were guided by  the paradigm that “bigger is better” but as lifestyles and consumption habits change, a shift in where consumers shop, what they buy, the frequency and amount of spend follow,” says Patrick Cua, Nielsen’s managing director in the Philippines.

“Small format stores meet a distinct shopper need of convenience as they are often situated near homes or high traffic areas.”

“It is no surprise that small-store format shoppers value stores that deliver on time-saving or convenience-related elements,” says Cua.

Philippines’ ODA loans disbursement level up 11.5%

The Philippine government’s disbursement level of official development assistance (ODA) loans has increased by 11.5 percent to US$1.40 billion in 2017 from US$1.25 billion in 2016, according to the National Economic and Development Authority (NEDA).

NEDA says the cumulative actual disbursement rate increased by 6 percent to 71.50 percent. The disbursement ratio—or the ratio of actual disbursements for a given year to the loan balance available at the beginning of that year inclusive of newly effective loans—increased to 16.66 percent, an increase of 29 percent from the previous year.

“This means implementing agencies are improving their technical capacities and making headway in resolving key issues that cause delays in the execution of programs and projects,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

The Philippines’ total outstanding ODA portfolio for the full year of 2017 reached US$14.72 billion, constituting 352 grants amounting to US$2.42 billion and 70 loans amounting to US$12.30 billion.

The infrastructure sector continued to receive the largest share of the total ODA at US$6.62 billion, accounting for 45 percent of the total amount, followed by social reform and community development at 26.11 percent.

Japan remained the top provider of ODA to the Philippines in 2017 with loans and grants for 2017 stood at US$5.33 billion, accounting for 36.18 percent of the country’s total ODA portfolio, followed by the World Bank with US$3.07 billion (20.88%) and the Asian Development Bank with US$2.97 billion (20.16%).

Of the total 407 projects and programs assisted by ODA loans and grants, 271 projects (66.58%) were on schedule while 79 (19.41%) were completed. Fifty-two projects (13%), on the other hand, were behind schedule while five (1%) were closed with incomplete outputs.

PAL ranked in top 50, voted 2nd most improved airline

PAL logo with 4 Star sealSkytrax, a leading UK-based research and consultancy firm, has ranked Philippine Airlines (PAL) 49th in world airline standings and second most improved airline in the world for 2018.

In its latest survey, PAL’s ranking has improved by 34 notches from 83rd two years ago and 18 notches from 2017.

PAL was recently certified as a full-fledged 4-star global airline by Skytrax and voted into the top 50 in the recent survey involving 20 million passengers, 100 nationalities and 335 airlines carried out by the independent rating and audit firm.

PAL President and Chief Operating Officer Jaime J. Bautista was elated with pride and joy.  “This latest win shows how far we have come in working to transform our airline, and this victory is especially sweet because it reflects the votes of our beloved customers. We are honored to be recognized by millions of passengers, and we renew our commitment to keep on serving them better from the caring heart of the Filipino.”

The latest international accolade was announced after PAL recently acquired its first ultra-modern Airbus A350-900, one of the world’s most advanced commercial aircraft.

“The 4-Star award, Top 49 ranking and the 2nd Most Improved Airline vote challenge us to keep up the progress, and our hi-tech new A350s and A321neos mark our determination to hit full 5-Star status by the end of 2020,” said Mr. Bautista.

PAL Chief Customer Experience Officer Jessica Abaya said PAL was also ranked in the top 30 in the World’s Best Cabin Cleanliness category. “This recognition inspires us to focus even more on delighting our customers. It also gives us greater confidence to reach our long term vision of becoming the 5-Star, full-service national carrier of the Philippines.”

PAL Chairman Dr. Lucio C. Tan expressed his gratitude to the 8,000 strong PAL family, citing their team synergy as the crucial factor in making the airline a global winner.

“The future is bright for Philippine Airlines. As the Philippines’ first and only 4-Star Airline, we will continue to provide more innovations and product refinements. Indeed, we will take in 27 new aircraft starting with our new A350s and A321 NEOs, so that we can fly more customers more comfortably and conveniently to their dream destinations.”

PAL remains focused on its key programs which include route network expansion, service innovations and fleet modernization. Its fleet of 89 Airbus, Boeing and Bombardier aircraft now serve a network covering two-thirds of the globe, promising distinctly Filipino heartfelt service as the international market leader in Philippine aviation.

 

A republic without plates no more

plates
After two years of delay and bureaucratic red tape, vehicle owners can now get their plates from The Department of Transportation (DOTr).
The Philippines has been branded as “Republika ng Walang Plaka,” (a republic without plates).
Transportation Secretary Arthur Tugade said that the scathing criticism to the government of being a “Republika ng Walang Plaka” is now finally over.
House Committee on Transportation Chairman Cesar Sarmiento hailed the release of the plates as a “day of celebration.”
When Secretary Tugade assumed his post, one of his marching orders was to make sure that the problem on the lack of vehicle plates be resolved the soonest possible time.
One of the long-term solutions was to establish a plate making facility that would allow the government to manufacture plates on its own. Since April to July 4, 2018, the facility has produced a total of 231,332 pairs of motor vehicle plates.
Secretary Tugade reminded transportation officials and employees to cut bureaucratic processes and corruption to ensure public services are delivered efficiently.

Philippines is ranked 73rd in Global Innovation Index Report

downloadThe Philippines is ranked 73rd in the 2017 Global Innovation Index Report, making the country  as one of the new “Asian Tigers” and leaders in information, communication and technology service exports in Southeast Asia.

Economic Planning Secretary Ernesto Pernia says the Philppine economic growth has been high and steady.

With a 6.7 percent growth in gross domestic product (GDP) in 2017, the economy accelerated further by 6.8 percent in the first quarter this year, making the Philippines one of the fastest growing economies in Asia, next to India (7.7%) and Vietnam (7.4%), and at par with China (6.8%).

Secretary Pernia noted that the Philippine economy is undergoing structural transformation as growth is increasingly being driven by investments, consumption on the demand side and the industry, manufacturing and services sector.

“The resurgence of the manufacturing sector is especially noteworthy, with the volume of production expanding by 20 percent in May 2018, sustaining its double-digit growth since the start of the year” says Secretary Pernia.

“This means that the quality of economic growth is improving, which implies that it is sustainable and able to generate quality jobs.”

The Philippine government’s massive infrastructure program “Build, Build, Build” is expected to fuel growth over the years as spending would rise to 7.3 percent of GDP on public infrastructure by 2022.

The government expects to complete 32 of 75 flagship projects by the end of 2022. The Philippines’ gross national income (GNI) per capita also grew annually by 4.8 percent in 2017 against its target of 4.5 percent growth for the year.

UNICEF’s assistance shows positive results on typhoon Yolanda victims – PIDS

Typhoon Yolanda unicef

The emergency unconditional cash transfer (UCT) program of the United Nations Children’s Fund (UNICEF) has showed positive results on typhoon Yolanda victims, according to a study by state think tank Philippine Institute for Development Studies (PIDS).

The UCT program, UNICEF’s first cash transfer program in the Philippines, provided monthly cash assistance of US$100 (5,000 pesos) to 10,000 Yolanda-affected families living in Tacloban City and neighboring municipalities from February 2014 to July 2014.

The six-month program targeted households with pregnant and lactating women, children suffering from moderate and severe acute malnutrition or at risk of malnutrition, persons with disabilities and chronic illness, elderly persons, single mothers and households hosting separated children.

In the study, authors Celia Reyes, Jose Ramon Albert, and Charina Cecille Reyes stressed that the UCT is different from the government’s conditional cash transfer program, because the former does not impose any conditions on the beneficiaries to allow them to address the specific needs of their respective households.

The authors asserted that contrary to the negative perception of cash transfer programs, the UCT has actually been a big help to beneficiary households in various aspects of the victims’ recovery.

In terms of health and nutrition, the beneficiaries had spent more than half of the cash assistance on food which resulted in significant decline in the prevalence of malnutrition among children from 5 percent to about 1 to 2 percent.

The program was also able to increase the average monthly income of beneficiaries, but the authors noted that it drastically declined when the grant ended, with some households falling back into poverty.  While the unemployment rate was reduced when the program ended, the number of children engaged in economic activity grew.

It also improved the educational status of children in affected areas, but school attendance slightly decreased when the program ended.

Overall, the program’s effect on the recovery of beneficiaries was more evident for those who used part of their cash transfer for livelihood or savings. However, they also emphasized that while it had yielded positive results, six months of assistance may not have been long enough for some households to get back on their feet.

Based on the UCT’s experience, similar programs in the future should consider setting up more accessible distribution points and generating local level data for targeting of beneficiaries. It is also important to consider that cash transfer programs are more useful when supply chains have been restored.

Philippine trade up 5.1% in May 2018

The Philippine merchandise trade grew by 5.1 percent to US$ 15.2 billion in May 2018,  backed by imports that rose by 11.4 percent and tempered by the slight decline in exports.

The Philippine Statistics Authority (PSA) reported that the May imports were driven by increased inbound purchases of mineral fuels, lubricants and related materials, capital goods, consumer goods, and raw materials and intermediate goods.

On the other hand, the contraction in merchandise exports slowed to 3.8 percent in May 2018 from 4.9 percent in April, partly supported by sustained growth in exports of forest products.

Among the major commodity groups, only forest products posted gains (77.8%) to register their 19th month of consecutive growth.

Exports of plywood grew by 167.8 percent, with shipments sent mainly to Japan and the U.S. Exports of lumber grew by 49.8 percent, which were shipped mainly to Japan and China. In the five months to May, receipts of forest products totalled US$94.8 million, 98 percent higher than the comparable period in 2017.

Agro-based products, manufactures, mineral and petroleum products continued to register negative growth so that total merchandise exports fell for a fifth consecutive month in May.

Electronic products, which accounted for 64.9 percent of manufactures exports in May, registered a slight gain of 2.3 percent.

Socioeconomic Planning Secretary Ernesto M. Pernia said that addressing cumbersome regulations, enhancing trade facilitation, and ensuring better access to trade finance will help improve the country’s business climate for exports.

“The recent passage of the Ease of Doing Business Act of 2018 should promote trade as it aims to reduce bureaucracy and corruption, factors which weigh down on economic activity. Its timely implementation is needed to improve trade facilitation,” Pernia said.

He added that opportunities from free trade agreements (FTAs) should also be maximized by facilitating programs that will increase awareness of industry players on the benefits of these agreements.

The recent ratification of the Philippines-European Free Trade Association FTA would boost exports to member states such as Iceland, Liechtenstein, Norway and Sweden.

“Successful negotiations for the PH-EU FTA are expected to secure more permanent preferential duties for Philippine export products compared with the EU generalized system of preferences (EU GSP+), thus further expanding market base,” Pernia said.

Vehicle auto parts, coconut, bananas, travel goods and handbags, tuna, carrageenan, and activated carbon should be given better exposure as these could potentially become major drivers of exports growth.

World Bank sees 6.7% growth for Philippine economy

The World Bank  has maintained its 6.7 percent growth forecast for the Philippine economy in 2019 despite rising global uncertainty.

In its latest Philippine economic update, the World Bank has revised Philippine government consumption growth upwards, while private consumption growth is expected to expand at 5.9 percent in 2018 and 6.2 percent in 2019.

Investment growth was slightly upgraded due to higher public capital outlays, including increased infrastructure spending. Overall, the World Bank expects real gross domestic product (GDP) growth to increase towards the end of 2018 and into the first half of 2019 with higher election-related public spending.

World Bank lead economist for the Philippines Birgit Hansl says the Philippine government’s ability to carry out its investment agenda would determine if the Philippines could achieve its growth target of 6.5 to 7.5 percent over the medium term.

“Higher private investment levels would be critical to sustain the Philippine economy’s growth momentum as capacity constraints become more binding,” says Hansl.

Exports, a key driver of growth for the Philippines economy, are projected to moderate in the coming years as global growth is expected to decelerate.

The World Bank’s June 2018 Global Economic Prospects projected a gradual global slowdown over the next two years with moderately higher commodity prices, strong but gradually moderating global demand, and incremental tightening of global financing conditions.

Uncertainty around global growth conditions has risen, with the possibility of trade and other policy shocks emerging from major economies.