Most forward-looking indicators and a strong labor market suggest near-term expansion although
manufacturing exports weakened. Sustained disinflation has allowed the Bangko Sentral ng Pilipinas (BSP) to
further reduce interest rates. However, shifting expectations about US monetary policy easing have increased
financial market volatility. Higher non-tax revenues have created more fiscal space, but enacting pending
priority tax measures remains crucial to fiscal sustainability.
4.0 percent in August 2024, driven by job gains in
trade, public administration, and accommodation and
Forward-looking indicators signal improved food services. After a brief uptick during the
production prospects in the near term. The S&P pandemic, unemployment has resumed its downward
Purchasing Manager’s Index (PMI) increased from trend with the year-to-date average of 4.0 percent
51.2 in August to 53.1 in September, the highest falling to a historic low. Similarly, year-to-date
among regional peers (Figure1). By contrast, the underemployment at 12.2 percent is on track to reach
ASEAN PMI registered a slowdown in its lowest annual average. More jobs, along with
manufacturing activity amid weak external demand. moderating inflation, are expected to bolster real
Philippine firms saw a sharp uptick in new orders incomes and domestic demand.
which boosted both hiring and purchasing activity
Amid these overall positive trends,
despite declining international sales and rising
manufacturing exports slowed. Growth in the
supplier prices. Business confidence continued to
volume of production index decelerated from
improve on the back of strengthening domestic
5.8 percent in August 2023 to 2.8 percent y-o-y in
demand. Production prospects are also supported
August 2024, the slowest in four months. On a month-
by increased imports. Raw materials and
on-month seasonally adjusted basis, growth declined
intermediate goods imports grew by 5.2 percent
by 0.9 percent primarily because of a slowdown in the
year-on-year (y-o-y) as firms ramp up production
manufacture of food products and computer and
ahead of the holiday season. After declining by 13.1
electronic products. Semiconductor exports fell for
percent in August 2023, imports of capital goods
the fourth consecutive month, contracting by
expanded by 9.6 percent y-o-y in August 2024.
13.8 percent y-o-y. The Philippines exports integrated
Growth across all capital goods components suggest
circuits and processors mainly to China, which has
a broad-based upturn in investment activity.
increased domestic production of these components.
A robust labor market underpins positive This could threaten the competitive edge of the sector
domestic demand prospects. The unemployment in the Philippines. Overall, goods exports growth
rate decreased from 4.4 percent in August 2023 to flattened to 0.3 percent y-o-y, weighed down by
Philippines Monthly Economic Developments | 1
declines in electronics and mineral products. Government spending continues to support
Exports of copper metal and other minerals (largely economic activity, fueled by the rapid expansion of
nickel products) contracted due to weak demand public investment. Public spending increased from
from China. 22.2 percent of GDP as of end-September 2023 to
22.6 percent of GDP the same period this year. The
Contained inflation has allowed further
uptick was largely due to higher capital outlays and
monetary easing and financial market support.
increased compensation for government employees.
Headline inflation slowed to 1.9 percent in
Year-to-date disbursements have already exceeded the
September (Figure 2). The decline was largely
national budget due to the release of standby
driven by easing food inflation as rice prices
appropriations under the 2024 budget. These are funds
benefited from favorable base effects and lower
that may only be released if revenues exceed
import tariffs. Headline inflation is now expected to
collection targets. They have been driven by robust
fall to 3.1 percent in 2024 and remain within the
revenue collections particularly from non-tax sources.
target range in 2025 and 2026. On October 16, the
BSP reduced interest rates by an additional 25 basis The fiscal deficit continued to decline due to
points following a similar cut in August. A target- bumper revenue collections, but further tax
consistent inflation outlook and well-anchored reforms are needed to ensure sustainability. A
inflation expectations continue to support the shift larger increment in revenues relative to expenditures
toward a more neutral monetary policy stance. It has has reduced the year-to-date fiscal deficit from 5.7
also allowed the BSP to further reduce the reserve percent of GDP as of September 2023 to 5.1 percent
requirement ratio (RRR) in a bid to minimize of GDP during the same period this year (Figure 4).
financial system distortions. The BSP has signaled Government revenues increased by 1.0 percentage
further RRR cuts but emphasized these should not point of GDP as of September, driven by a surge in
be construed as a change in its monetary policy non-tax revenue. Earlier this year, the government
settings. The winding down of the RRR is part of the increased the dividend remittance requirement for
shift away from its use as a liquidity management tool government owned-and-controlled corporations from
towards more market-based instruments such as BSP a minimum of 50 percent to 75 percent. Consequently,
bills and term deposit facilities. non-tax revenues from other offices almost doubled
y-o-y. Programmed tax revenues are also largely on
Concerns over the pace of US monetary easing
track, supported by adjustments in excise taxes from
have increased financial market volatility. The
previous legislation and efforts to improve tax
prospect of slower rate cuts by the US Federal
administration through implementation of the Ease of
Reserve has strengthened the US dollar while
Paying Taxes Act. Among the priority tax reform
heightening financial market volatility. These
measures this year, Congress has passed the value-
developments have pared back gains in the
added tax on digital service providers and reforms to
Philippine Stock Exchange index, from a 4.6-percent
real property valuation. However, several measures
increase in the month leading to September to a 3.6-
are still pending approval and remain important to
percent rise in the same period ending on October 18.
enhancing fiscal sustainability.
Meanwhile, the Philippine peso depreciated by
3.5 percent in the 30 days prior to October 18 as a
strong US dollar weighed on currencies across the
region (Figure 3). The BSP Governor has noted
concern over sharp movements in the exchange rate
which could spur inflation. However, the BSP has
held back from intervening in the market thus far.
Philippines Monthly Economic Developments | 2
Figure 1. Strong domestic demand allowed the Philippines to defy a Figure 2. The BSP further reduced interest rates following sustained
downtrend in the PMI among its regional peers. disinflation particularly in food prices.
Source: S&P Global. Source: Philippine Statistics Authority and BSP.
Figure 3. A resurgent US dollar weighed on emerging market currencies Figure 4. A sharp increase in non-tax revenues has enabled greater
due to expectations of slower monetary easing in the US. public spending despite ongoing fiscal consolidation.
*Local currency to US$ exchange rate indexed to January 2024 = 100; end of Source: Bureau of the Treasury and World Bank estimates.
period data as of October 18.
Source: Haver Analytics and various central banks.
Developments to Watch
• Manufacturing: Will increased imports of capital goods and production inputs, particularly for the electronics
sector, translate into improved manufacturing activity in succeeding months?
• Monetary policy: The peso has fallen further than its regional peers since the start of the year. How will this affect
the BSP’s monetary policy and financial stability considerations?
• Fiscal policy: Apart from the value-added tax on digital service providers and real property valuation reforms, can
the government pass its remaining priority tax measures this year?
Philippines Monthly Economic Developments | 3
SELECTED ECONOMIC AND FINANCIAL INDICATORS
2022 2023 Q1 2024 Q2 2024 Jul-24 Aug-24 Sep-24
In percent, unless otherwise indicated
Real GDP growth, at constant market prices 7.6 5.5 5.8 6.3
Private consumption 8.3 5.6 4.6 4.6
Government consumption 4.9 0.6 1.7 10.7
Capital formation 13.8 5.9 0.5 11.5
Exports, goods and services 10.9 1.4 8.4 4.2
Imports, goods and services 13.9 1.0 2.2 5.2
Industry Performance
Value of Production Index (growth rate) 49.2 4.4 -2.3 3.6 6.4 1.8
Volume of Production Index (growth rate) 52.6 5.9 -1.3 4.2 6.9 2.8
Average Capacity Utilization 65.8 73.7 74.9 75.4 75.7 75.5
S&P Philippines Purchasing Managers' Index 51.3 51.8 50.9 51.8 51.2 51.2 53.7
Monetary and Banking sector
Headline Consumer Price Index (growth rate) 5.8 6.0 3.3 3.8 4.4 3.3 1.9
Core Consumer Price Index (growth rate) 3.9 6.6 3.6 3.1 2.9 2.6 2.4
Domestic liquidity (M3) (growth rate) 6.9 6.7 5.6 6.2 7.2 5.5
Credit growth (universal and commercial banks
loans to residents) 8.2 9.6 9.8 11.0 10.0 9.6
Business loans 8.6 7.0 7.1 8.5 9.0 9.6
Consumer loans 7.9 25.5 24.8 23.5 22.6 22.0
Fiscal sector (Quarter and Annual)
Fiscal balance (% of GDP) -7.3 -6.2 -4.5 -5.3
Total Revenue (% of GDP) 16.1 15.7 15.3 18.7
Tax Revenue (% of GDP) 14.6 14.1 13.4 15.6
Total Expenditure (% of GDP) 23.4 22.0 19.7 24.0
National government debt (% of GDP, eop) 60.9 60.2 60.2 60.9
Stock market
PSEi (month-end value) 6566.4 6439.5 6903.5 6411.9 6619.1 6897.5 7272.7
External accounts
Current account balance (% of GDP) -4.5 -2.6 -1.8 -4.6
Exports of goods (growth rate) 1/ 5.7 -7.4 7.3 2.5 0.1 0.3
Imports of goods (growth rate) 1/ 17.4 -7.9 -5.7 2.2 7.3 2.7
Net foreign direct investment (in million US$) 9492.2 8864.0 2965.7 1469.7
Balance of payment (% of GDP) -1.8 0.8 0.2 1.1
International reserves (in million US$) 100690 100501 103111 104284 106738 107858 112707
Import cover (months) 8.1 7.5 7.6 7.7 7.7 7.8 8.1
Nominal exchange rate (average, PhP/US$1) 54.5 55.6 56.0 57.8 58.5 57.2 56.1
Labor Market
Unemployment rate 5.4 4.3 4.0 3.7 4.7 4.0
Underemployment rate 14.2 12.3 12.4 11.0 12.1 11.2
Sentiments
Consumer confidence index (end of period) -14.6 -12.4 -10.9 -20.5
Business confidence index (end of period) 23.9 36.6 33.1 32.1
Source: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, and Bureau of the Treasury.
1/ Using the IMTS data released by the Philippine Statistics Authority.
Philippines Monthly Economic Developments | 4