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we tell it like it is 3RD Quarterly Roundtable Gary B. Teves Managing Director August 2, 2012 Rigodon Ballroom A & B, Peninsula Manila Hotel QRT ECO CHART 1 AUGUST 2, 2012 A SURPRISING 6.4% GROWTH IN 1Q12 UP FROM 4.9% IN 1Q11 QUARTERLY GDP GROWTH RATES (%, AT ‘00 PRICES) REBOUND IN GOV’T SPENDING: 9 O&M EXPENSES +24% 8 7 INFRA/CAPEX +62.2% 6 5 STRONG CONSUMER SPENDING (OFWs, CCT, ETC.) +6.6%, 35-YEAR HIGH! 6.9% IN 1977 4 3 2 1 QRT ECO CHART 2 2Q 1Q 12 3Q 4Q 2Q 1Q 09 3Q 4Q 06 2Q 1Q 3Q 4Q 03 2Q 1Q 3Q 4Q 1Q SOME RECOVERY IN EXPORTS: +7.9% VS. +3.9% 1Q11 00 0 Source: National Statistical Coordination Board (NSCB) AUGUST 2, 2012 SERVICE SECTOR DRIVEN SERVICES UP 8.5% IN 1Q12, MORE THAN DOUBLE 3.6% IN 1Q11… REAL ESTATE +24.3% HOTELS & RESTAURANTS +10.9% RETAIL TRADE +10.1% COMMUNICATIONS +9.8% … AND CONSUMER-DRIVEN MAJOR CONTRIBUTION TO GDP INCREASE WERE RETAIL, FOOD MANUF’G, TELECOMS (MOBILE), REAL ESTATE AND RECREATION QRT ECO CHART 3 AUGUST 2, 2012 SOURCES OF GROWTH (% OF INCREASE IN GDP) FOOD MANUF’G 8.7% TELECOM 7.7% INFRA 7.5% REAL ESTATE 7.1% RETAIL 18.5% RECREATIONAL 6.5% FURNITURE 6.3% BANKING 5.1% RENTING 4.3% OTHERS 24.7% 9 INDUSTRIES = 75.3% OF GDP INCREASE (OUT OF 46 INDUSTRIES) QRT ECO CHART 4 AUGUST 2, 2012 SECOND FASTEST IN EMERGING ASIA IN 1Q12 REAL ANNUAL GDP GROWTH RATE: SELECTED ASIAN COUNTRIES (%) COUNTRY 1Q12 1Q11 AVE. 1Q12&1Q11 CHINA 8.1 9.7 8.9 PHILIPPINES 6.4 4.9 5.7 INDONESIA 6.3 6.5 6.4 INDIA 5.3 8.5 6.9 MALAYSIA 4.7 5.2 5.0 VIETNAM 4.0 5.6 4.8 SOUTH KOREA 2.8 4.2 3.5 SINGAPORE 1.6 9.1 5.4 TAIWAN 0.4 6.6 3.5 THAILAND 0.3 3.2 1.8 BUT IT’S JUST ONE QUARTER: AVE. OF 2 QUARTERS PH PERFORMED JUST WITHIN ASIAN AVE ONLY QRT ECO CHART 5 AUGUST 2, 2012 ECONOMIC RESULTS SUMMARY (% REAL GROWTH RATE) ITEM 1Q12 1Q11 2011 GDP GNI 6.4 5.8 4.9 3.5 3.9 3.2 CONSUMER SPENDING GOV’T CURRENT EXP. FIXED INVESTMENT PUBLIC CONSTRACTION (INFRA) PRIVATE CONSTRACTION (PROPERTY) PLANT & EQUIPMENT EXPORT GOODS & SERVICES IMPORT GOODS & SERVICES 6.6 24.0 2.8 62.2 -9.9 3.6 7.9 -2.6 5.9 -15.8 12.5 -37.9 23.0 17.2 3.9 11.2 6.3 1.0 0.2 -31.8 4.5 5.2 -4.2 0.2 AGRICULTURE INDUSTRY SERVICES 1.0 4.9 8.5 4.4 7.3 2.8 2.7 2.3 5.1 QRT ECO CHART 6 AUGUST 2, 2012 IS IT SUSTAINABLE? NOT AT 6%++ IN 2012 2 -2 WORLD US EURO AREA 12 20 11 20 WEAKEST US RECOVERY IN 4 DECADES 10 -6 20 WORLD ECONOMIC ENVIRONMENT NOT PROMISING, TOO 6 09 FIXED INVESTMENT SLUGGISH, UP ONLY 2.8% = CAPACITY CONSTRAINTS TO GROWTH GDP GROWTH:US, EUROAREA, WORLD 20 IMPORTS ARE WEAK, DOWN -2.6% IN 1Q12 = NO INDUSTRIAL SURGE, WEAK IND’L ACTIVITY EUROZONE IN A RECESSION – FINANCIAL CRISIS IN SOME AREAS COULD IMPACT ADVERSELY GLOBALLY CHINA A SLOWING GROWTH LOCOMOTIVE FOR ASIA QRT ECO CHART 7 AUGUST 2, 2012 1 FASTER GROWTH IN 2013 MAJOR PPP PROJECTS IN 2012/2013 2012 PROJECT COST INFRASTRUCTURE SPENDING IN FULL SWING, ACCELERATING IN 2013 DAANG HARI-SLEX ROAD P2.0B SCHOOL INFRASTRUCTURE 10.0B CONSUMER SPENDING SUSTAINED BY: LRT-1 EXTENSION 59.2B NAIA X’WAY II 15.8B P39B CONDITIONAL CASH TRANSFER + OTHER ANTI-POVERTY SUBSIDIES OFW REMITTANCES IT-BPO JOB CREATION 2013 NLEX-SLEX CONNECTOR P20.1B CAVITE-LAGUNA X’WAY 19.7B P. PRINCESA AIRPORT O&M N.A. LAGUINDINGAN AIRPORT O&M 1.8B PANGLAO AIRPORT 8.0B LRT 2 EXTENSION 11.9B ACCESS TO CREDIT + STABLE PRICES QRT ECO CHART 8 AUGUST 2, 2012 2 FASTER GROWTH… INVESTMENTS TO START PICKING UP: MINING & MINERAL PROCESSING PLANTS: 2013 & ONWARDS RENEWABLE ENERGY – MINI-HYDROS & BIO MASS AGRI-BUSINESS: BEVERAGES (COFFEE), DAIRY PRODUCTS, ORGANIC & HALAL FOODS, ETC. EXPANSION OF AUTO PARTS, ELECTRONICS, GARMENTS PROPERTY DEVELOPMENT STILL BOUYANT: OFFICE SPACE FOR BPO’S (BPO GROWING ~20% P.A.) HOTELS & RESORTS TO SUPPORT INCREASE IN TOURISTS 4M ‘12 8M ‘16 BUT RESIDENTIAL CONDOS COULD SLOW BY 2013+ DUE TO EXCESS SUPPLY PH ABLE TO INSULATE ITSELF FROM EXTERNAL THREATS 6-7% GDP GROWTH IN 2013 QRT ECO CHART 9 AUGUST 2, 2012 BUT BACK TO 5-6% 2014/2015 PH INDUSTRIAL STRUCTURE NOT DEEP AND DIVERSIFIED ENOUGH TO SUSTAIN “POTENTIAL” GROWTH OF 7%+ INDUSTRY’S SHARE TO THE ECONOMY (GDP) HAS FALLEN IN PAST 10 YEARS INDUSTRY AND MANUFACTURING (% OF GDP) 40 INDUSTRY MANUF'G MANUFACTURING’S SHARE DOWN, TOO QRT ECO CHART 10 AUGUST 2, 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 EXPORTS NOT DIVERSIFIED: 60% ARE ELECTRONICS & AUTO PARTS 20 20 MANUF’G DOMINATED BY JUST 4 INDUSTRIES, INCL. F&B AND ELECTRONICS = 66% OF TOTAL 30 2012 1 KEY BUSINESS COST FORECAST EXCHANGE RATE P:$ RATE STILL APPRECIATING IN 2012 43-44 END ‘11 41-42 TODAY, P42:$1 AVE ’12 WITH MORE DOLLAR INFLOWS DUE TO: OFW REMITTANCES STILL RISING 5-6% BPO STILL DELIVERING THE $’S TOURISM EXPERIENCING A MODEST BOOM STEADY AT NEAR 42 IN 2013 AS BSP ADOPTS MEASURES TO SLOW INFLOW OF PORTFOLIO INVESTMENTS, LIBERALIZE OUTFLOW OF $’S DEPRECIATES SLIGHTLY IN 2013 AS US$ STRENGTHENS WITH US RECOVERY, EURO AREA HITTING BOTTOM (= SOME OUTFLOW OF $ TOWARDS US, ETC.) QRT ECO CHART 11 AUGUST 2, 2012 2 KEY BUSINESS COST FORECAST… INTEREST RATES AT HISTORIC LOWS IN 2012, 6-7% PRIME; 91-DAY TBILL RATES 2-3% BUDGET DEFICIT UNDER CONTROL DESPITE INCREASED SPENDING LOW WORLD INTEREST RATES, ALMOST ZERO POLICY RATES IN EURO AREA CREDIT RATING UPGRADES (TO ONE-NOTCH BELOW INVESTMENT-GRADE) = REDUCED RISK PREMIUM = IMPROVED FDI PROSPECTS BSP CUTTING KEY RATES ALMOST UNCHANGED IN 2013: BSP KEEPS RATES LOW TO ARREST PESO APPRECIATION + POSSIBLE INVESTMENT-GRADE CREDIT RATING UP SLIGHTLY IN 2014 LOAN DEMAND , LOW BASE PAST 3 YEARS, GLOBAL RECOVERY MORE WIDESPREAD QRT ECO CHART 12 AUGUST 2, 2012 INFLATION RECEEDING IN 2012 DUE TO SOME DECLINE IN WORLD OIL, COMMODITY PRICES WITH WEAK GLOBAL DEMAND CLIMBS BACK TO NEAR HISTORICAL (10-YEAR) AVE. OF 4 ½% IN 2013/2014 AS DOMESTIC DEMAND RISES WITH FASTER ECONOMIC GROWTH, WORLD OIL, COMMODITY PRICES FIRM UP WORLD CRUDE OIL PRICE (AVE OF 3 SPOT CRUDE, $/BBL) 115 100 85 QRT ECO CHART 13 4 2 0 1 3 2 0 1 2 2 0 1 1 1 0 2 2 0 1 0 70 AUGUST 2, 2012 FORECAST UPDATE ITEM 2011 2012 2013 2014/2015 % GROWTH: GDP GNI 3.7 2.6 6.0 6.0 6-7 6-7 5-6 6-7 CONSUMER SPENDING GOV’T CONSUMPTION FIXED INVESTMENT EXPORT GOODS & SERVICES IMPORT GOODS & SERVICES 6.1 -0.7 2.7 -3.8 1.9 6.4 6.6 3.0 4.0 3.0 6-7 7-8 5-6 6-7 7-8 5-6 5-6 6-8 5-7 6-8 AGRICULTURE INDUSTRY SERVICES 2.6 1.9 5.0 2.0 4.5 8.2 3-4 5-6 8-9 3-4 5-7 6-8 P:RATE (AVE) BANK LENDING RATE (%) 91-DAY T-BILL RATE (%) INFLATION (%) 43.6 7.2 2.0 4.8 42.0 6.5 2.0 3.2 41.8 6.7 2.5 3.6 42-43 7-8 3-4 3-5 QRT ECO CHART 14 AUGUST 2, 2012 1 WHAT’S NEEDED TO GROW 7% P.A. AND ACHIEVE INCLUSIVE GROWTH? THERE’S AN OPPORTUNITY TO DO SO BECAUSE IMPROVING STATE OF FINANCES GIVES PH MORE ROOM FOR GROWTH: BUDGET DEFICIT REMAINS UNDER CONTROL (<<3% OF GDP) DESPITE STRONG SPENDING THIS YEAR FOREIGN RESERVES STILL BUILDING UP: $76B AS OF JUNE, MORE THAN FOREIGN DEBT OF $62B FOREIGN DEBT REDUCED TO 28% OF GDP, BETTER THAN 32% ASEAN AVE., WITHIN 25-30% ASIA-PACIFIC MEDIAN QRT ECO CHART 15 AUGUST 2, 2012 2 WHAT’S NEEDED TO GROW 7% P.A… PH LIKELY TO ATTAIN “POTENTIAL” GROWTH (7% P.A.) IF THE FOLLOWING CONDITIONS EXIST: INFRA SPENDING IS SUSTAINED AT 5% OF GDP OR HIGHER (ASEAN AVE.: 6%), NOT AT 3% THAT IT AVERAGED DURING PAST 5-6% YEARS TAX EROSION AVOIDED, IN FACT TAX RATIO SHOULD BE IMPROVING TO >14%, TO SUPPORT HIGHER INFRA & BASIC SERVICES SPENDING BETTER IF WE CAN ATTAIN 17% AS WE DID IN 1995-97 BEFORE ASIAN FINANCIAL CRISIS GOVERNANCE & COMPETITIVENESS IMPROVE SIGNIFICANTLY WITH GLOBAL RANKINGS RISING TO UPPER HALF INSTEAD OF BOTTOM THIRD IN TI CORRUPTION RANKING (129TH OUT OF 182 COUNTRIES) AND COMPETITIVENESS RANKING (WEF: 75TH OUT OF 142) QRT ECO CHART 16 AUGUST 2, 2012 3 WHAT’S NEEDED TO GROW 7% P.A… PASSAGE OF KEY REFORM BILLS, ESPECIALLY: SIN TAX AMENDMENTS FREEDOM OF INFORMATION PUBLIC UTILITIES ACT AMENDMENTS ANTI-TRUST RATIONALIZATION OF FISCAL INCENTIVES AMLA AMENDMENTS IPR ACT AMENDMENTS + CHARTER CHANGE (ECONOMIC PROVISIONS) SOME REFOCUSING ON INDUSTRIES/MANUF’G: DEVELOPMENT AND IMPLEMENTATION OF DOABLE INDUSTRY ROADMAPS INCREASE IN FDI QRT ECO CHART 17 AUGUST 2, 2012