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Philippine Economic Outlook . Dr. Roberto F. de Ocampo President Makati Shangri-La 21 February 2006. Outline of Presentation. 2005 Philippine Economic Performance Analysis of Economic Performance Outlook for 2006. 2005: A Challenging Year. Protracted Political Crisis

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Philippine Economic Outlook

Dr. Roberto F. de Ocampo

President

Makati Shangri-La

21 February 2006


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Outline of Presentation

  • 2005 Philippine Economic Performance

  • Analysis of Economic Performance

  • Outlook for 2006


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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


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Economic Performance Indicators

  • Surprising, resilient GDP growth

Growth Rates

Source: NEDA


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Economic Performance Indicators

  • Slower growth in most Asian countries

GDP Growth Rates for Selected Asian Countries

Source: NEDA, Ateneo


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Economic Performance Indicators

  • Strengthening Peso

Philippine Peso – US Dollar Exchange Rate

Source: BSP


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Economic Performance Indicators

  • OFW Remittances on the rise

Remittances from Overseas Workers

25% Increase

In Millions of US$

Source: BSP


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Economic Performance Indicators

  • Budget Deficit under control

RP Government Budget Deficit

In Billions of Philippine Pesos

Source: BSP


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Economic Performance Indicators

  • Stock market is rebounding

Philippine Stock Exchange Indicators

In Millions of Philippine Pesos

PSE Composite Index

Source: PSE


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Economic Performance Indicators

  • T-Bill spreads falling

3 Month Treasury Bill Rates

Source: BSP


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Economic Performance Indicators

  • Inflation easing

Monthly Inflation Rates 2000-2005

Source: BSP


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2006: Looking Up?

  • Improved credit ratings outlook

  • Increased tax collections from 12% VAT

  • Improvement in agricultural outlook

  • Better export potential

  • Local business optimism


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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?


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2006: Challenges Remain

  • Need to improve investment climate


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Economic Performance Indicators

  • Limited FDI inflows

Net Foreign Direct Investments

In Millions of US$

Source: BSP


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2006: Challenges Remain

  • Need to improve investment climate

  • Currency appreciation may be difficult to sustain


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Strength of Currency

  • Change in BSP Regulations

  • Entry of portfolio funds to select stocks in the market


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Economic Performance Indicators

  • Return of Portfolio Investors

Net Inflows of Portfolio Investments

In Millions of US$

Source: BSP


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Strength of Currency

  • Change in BSP Regulations

  • Entry of portfolio funds to select stocks in the market

  • Excess global liquidity looking for Asian investments


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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


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Economic Performance Indicators

  • Seasonal fluctuations due to OFW Remittances

Philippine Peso – US Dollar Exchange Rate

Philippine Pesos

Source: BSP


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2006: Challenges Remain

  • Need to improve investment climate

  • Strengthening currency may difficult to sustain

  • Higher taxes may lower consumer demand



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Why is Growth not Being Felt?

  • Slow growth in agriculture

  • Falling investments

  • Low job generation

  • High inflation caused by oil and VAT


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Potential Growth Drivers

  • Improved VAT collections/fiscal reforms

  • Infrastructure development

  • Power sector privatization

  • Mining

  • Booming sectors:

    • BPO / IT outsourcing

    • Tourism

    • Finance


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Potential Growth Challenges

  • Tax revenue leakage

  • Slow infrastructure development

  • Opposition to mining investments

  • Slow privatization


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Potential Risks

  • Oil shock

  • Bird flu pandemic

  • Continuing political problems


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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


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Outlook for 2006

  • Political crisis overhang

  • Stable growth

  • India as model for development


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Philippine Economic Outlook

Dr. Roberto F. de Ocampo

President

Makati Shangri-La

21 February 2006


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