Philippines Monthly Economic Developments November 2022 a The economy registered better-than-expected performance, as GDP grew by 7.6 percent year-on-year in Q3 2022 (6.1 percent consensus forecast) fueled by strong domestic demand despite high inflation and an unfavorable external environment. However, core inflation remained elevated, amid continued strong domestic demand, while food and energy inflation continued to surge amid high global commodity prices. Meanwhile, factory output slowed in September, but goods exports rebounded as supply chain pressures eased. Unemployment returned to its pre-pandemic level in September, yet job quality remains a concern. The economy expanded by 7.6 percent year-on-year in Q3 crops, livestock, and poultry during the quarter and in part by 2022, surpassing consensus forecasts (6.1 percent) amid base effects from the 1.7 percent contraction from the surging domestic demand.1 The Philippines joined other previous year. countries in the region that displayed robust growth such as Growth in the manufacturing sector was muted in Malaysia (14.2 percent), Vietnam (13.7 percent), Indonesia September, as the S&P Purchasing Managers’ Index (PMI), (5.7 percent). Growth was driven by private consumption (8.0 suggests a similar outlook for October. The volume of percent), as the impact of the wider economic reopening, production index (VoPI) growth slowed to 2.4 percent in improved labor market outcomes, and sustained remittances September 2022 (4.4 percent in August 2022). Eight out of outweighed high inflation. Optimism on the economy twenty-two industry divisions reported output contractions, extended into robust fixed investment growth (10.1 percent), including the electrical equipment (-54.7 percent) and basic driven by double-digit growth in construction and durable metals (-34.2 percent) industry divisions due to weaker equipment investments. Export growth accelerated to 13.1 demand in China. The Philippine PMI marginally declined to percent in Q3 2022 despite the deceleration in global activity, 52.6 in October (52.9 in September) as orders from abroad as services exports grew by 32.5 percent. Meanwhile, import contracted by its sharpest pace in March. growth accelerated to 17.3 percent (12.7 percent in Q3 2021) fueled by robust private domestic demand. The trade deficit declined in September as merchandise export growth rebounded while import growth decelerated. The services sector drove growth. Service sector growth Goods exports expanded by 7.0 percent in September (-2.0 accelerated to 9.1 percent in Q3 2022 (6.5 percent in Q2 2021), percent in August 2022) buoyed by the growth of electronics as contact intensive industries continued to benefit from the exports (19.3 percent) as semiconductor supply chain wider economic reopening. Meanwhile, output of the industry pressures eased. Meanwhile, imports expanded by 14.1 sector slowed to 5.8 percent in Q3 2022 (8.7 percent in Q3 percent, fueled by the importation of consumer goods (28.7 2021) amid a slowdown in manufacturing due to a percent) and capital goods (11.1 percent). The trade deficit fell deceleration in external demand. Agriculture output expanded to US$4.8 billion in September (5.3 percent of Q3 GDP) as the by 2.2 percent in Q3 2022, led by the rebound in production in growth differential between imports and exports narrowed to Figure 1: The economy expanded by 7.6 percent in Q3 2022. Figure 2: Exports rebounded in September 2022. 50 20 Export growth 10 40 Import growth 0 30 Percentage point -10 Percent 20 -20 10 -30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 0 2019 2020 2021 2022 Net exports Investments -10 Government Consumption Household Final Consumption Expenditure GDP Growth Source: Philippine Statistics Authority (PSA) Source: PSA q PHILIPPINES Monthly Economic Developments | November 2022 1 All growth numbers are year-on-year unless otherwise stated. its lowest level since March 2021. The rebound of exports in 2022. Claims on the private sector grew by 10.1 percent in the region contributed to wider trade surpluses in large ASEAN September 2022, while outstanding loans for production economies, such as Malaysia (8.3 percent of GDP), Thailand activities expanded by 9.7 percent. (2.6 percent of GDP), and Indonesia (1.5 percent of GDP) The Philippine Stock Exchange Index (PSEi) and Philippine The fiscal deficit narrowed to 6.5 percent of GDP in Q3 2022 peso slightly recovered. The PSEi rose by 7.4 percent between (-9.2 percent of GDP in Q3 2021). Public Revenues increased October 12 and November 12 buoyed by news of robust Q3 by 1.5 percentage points (ppt) of GDP in Q3 as tax revenues GDP growth, the slowdown in US inflation, and in anticipation grew by a 1.2 ppt of GDP fueled by the ongoing economic of Q3 financial results. The stock inflows contributed to the 3.1 recovery. Meanwhile, public expenditures declined by 1.2 ppt percent month-on-month appreciation of the Philippine Peso of GDP in Q3 2022 to reach 24.2 percent of GDP as the in early November. Nevertheless, on an annual basis, the peso government continued to unwind fiscal support. The national has depreciated by 12.5 percent as of November 13 while government debt ratio increased to 63.7 percent of GDP as of regional currencies similarly experienced depreciation, albeit end-September 2022 from 60.4 percent in end-2021. at a slower pace (Figure 4). Headline inflation accelerated to 7.7 percent in October (6.9 The unemployment rate declined to its lowest level since the percent in September), the highest since December 2008. pandemic amid the continued recovery in domestic demand. Food inflation accelerated to 9.8 percent in September, amid The unemployment rate declined from 5.3 percent in August elevated global commodity prices, and damage to agriculture to 5.0 percent in September, as the economic recovery from recent typhoons. In addition, energy prices continued to continued to fuel job creation. However, the quality of jobs rise (16.1 percent) on the back of elevated global crude oil continued to worsen as the underemployment rate increased prices. Core inflation accelerated from 5.0 percent in from 14.7 percent in August to 15.4 percent in September. September to 5.9 percent in October, indicative of rising Elementary occupations associated with lower pay continue to demand-side pressures. The Philippines registered the highest represent the highest share of workers’ occupation, at 28.9 headline inflation among its regional peers since September percent as of September 2022. (Indonesia (5.9 percent), Malaysia (4.5 percent), and Thailand COVID-19 cases continued to decline in early November. The (6.4 percent)), resulting in the sharpest increase in the key national number of daily cases averaged 1,050 from November policy rate among its regional peers. 1 to 14 (2,165 in October). The reduction in cases continued Financial soundness indicators for the Philippines’ banking despite the relaxation of the face mask mandate in indoor sector continued to improve in September 2022. Gross Non- settings, and the return of mandatory face-to-face classes Performing Loans ratio fell to 3.4 percent from 3.6 percent in beginning November 2. Nationwide, the number of fully the last quarter. Banking sector liquidity remains adequate as vaccinated Filipinos has risen to over 73.6 million, and the domestic liquidity (M3) increased by 5 percent, while the liquid number of boosted individuals to over 20.7 million as of assets to deposits ratio was at 53.5 percent in September November 15. Figure 3: Headline inflation accelerated further in October. Figure 4: The Peso has appreciated since falling to historic lows in September. Transport: Fuels and lubricants for personal transport 105 Transport: Fuels and lubricants for personal transport 18 Food and non-alcoholic beverages Utilities: Electricity, gas, and other fuels 100 Alcoholic beverages and tobacco Other non-food commodities 95 Percent Headline inflation Core Inflation 90 85 (2) Mar Aug May Sep Mar May Aug Sep Feb Apr Feb Apr Oct Nov Dec Oct Jan Jun Jul Jan Jun Jul Indonesia Malaysia Philippines Thailand Vietnam 2021 2022 Source: PSA Source: Haver Analytics; Decline means depreciation (Jan 2022=100) PHILIPPINES Monthly Economic Developments | November 2022 Developments to Watch • Inflation: will core inflation continue to accelerate as the country approaches the holiday season? • Trade: was the rebound in merchandise exports temporary amid lingering weakness in global activity? • Exchange rate: will the Philippine Peso sustain its recent strong performance? Selected Economic and Financial Indicators 2020 2021 Q2 2022 Q3 2022 Aug-22 Sep-22 Oct-22 In percent, unless otherwise indicated Real GDP growth, at constant market prices -9.5 5.7 7.5 7.6 Private consumption -8.0 4.2 8.6 8.0 Government consumption 10.5 7.1 11.1 0.8 Capital formation -34.2 20.3 21.1 21.7 Exports, goods and services -16.1 8.0 4.4 13.1 Imports, goods and services -21.6 13.0 13.8 17.3 Industry Performance Value of Production Index (growth rate) -40.7 164.1 8.0 11.0 Volume of Production Index (growth rate) -38.2 167.3 1.0 3.5 Average Capacity Utilization 56.8 65.8 70.5 71.4 Nikkei Philippines Purchasing Managers' Index 42.5 51.3 54.1 51.6 51.2 52.9 52.6 Monetary and Banking sector Headline Consumer Price Index (growth rate) 2.4 3.9 5.5 6.5 6.3 6.9 7.7 Core Consumer Price Index (growth rate) 3.1 3.0 2.8 5.5 4.6 5.0 5.9 Domestic liquidity (M3) (growth rate) 12.8 7.3 7.0 6.3 6.8 5.0 Credit growth (universal and commercial banks loans to residents) 7.0 0.6 10.9 12.4 12.1 13.1 Business loans 6.0 0.9 11.0 11.8 11.5 12.3 Consumer loans 20.9 -8.2 8.6 17.8 18.3 20.6 Fiscal sector Fiscal balance (% of GDP) -7.6 -8.6 -6.6 -6.5 Total Revenue (% of GDP) 15.9 15.5 17.5 17.7 Tax Revenue (% of GDP) 13.9 14.1 15.6 16.1 Total Expenditure (% of GDP) 23.5 24.1 24.1 24.2 National government debt (% of GDP, in billion Php for monthly [outstanding] ) 54.5 60.4 62.1 63.7 13021 Stock market PSEi (month-end value) 7139.7 7122.6 6553.8 6213.6 6583.7 5741.1 5741.1 External accounts Current account balance (% of GDP) 3.6 -3.5 -7.7 Exports of goods (growth rate) -7.8 17.2 8.2 4.8 4.4 4.7 Imports of goods (growth rate) -19.2 34.0 26.5 25.5 26.0 24.6 Net foreign direct investment (in million US$) 6822 10518 2202 600 Balance of payment (% of GDP, in million US$ for monthly) 2.2 0.4 -3.5 -572 International reserves (in million US$) 110117 106952 103300 96760 97442 95014 95014 Import cover (months) 11.8 10.1 8.4 7.7 7.8 7.4 7.5 Nominal exchange rate (Php/US$1) 49.6 49.3 53.1 56.4 55.9 57.4 58.8 Labor Market Unemployment rate 10.4 7.8 5.9 5.2 5.3 5.0 Underemployment rate 16.4 15.9 13.7 14.6 14.7 15.4 Sentiments Consumer confidence index (end of period) -47.9 -24.0 -5.2 -12.9 Business confidence index (end of period) 10.6 39.7 35.4 26.1 Source: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, and Bureau of the Treasury. Prepared by a World Bank team consisting of Kevin Cruz, Eduard Santos, Ludigil Garces, Patrizia Benedicto, Karen Lazaro, Radu Tatucu, Kevin Chua, and Ralph van Doorn, under the guidance of Lars Christian Moller. For previous editions, please refer to the World Bank Philippines publication website. For a more detailed look at the recent developments and outlook for the PHILIPPINES Monthly Economic Developments | November 2022 Philippines, please refer to the Philippine Economic Update. Contact Kevin Cruz (kcruz@worldbank.org) for questions.