Philippines Monthly Economic Developments January 2024 a The economy expanded by 5.6 percent year-on-year in Q4 2023 as robust private consumption continued to fuel growth, while the recovery of tourism buoyed the expansion of services. The cumulative fiscal deficit declined in November 2023, while low external demand dampened goods exports, which weighed on manufacturing output growth. The unemployment rate fell to a 15-year low in November, supported by strong domestic demand during the holidays, yet job quality remains a concern. GDP grew by 5.6 percent year-on-year in Q4 2023 (7.1 percent transport equipment. The growth contribution of government in Q4 2022), bringing full-year growth to 5.6 percent in 2023, consumption reversed to -0.2 ppt of GDP due to ongoing fiscal in line with World Bank projections. Services accounted for consolidation and the temporary reduction of national tax nearly 80 percent of growth, though its growth contribution allotments to local government units due to a lower revenue declined from 5.9 percentage points (ppt) in Q4 2022 to 4.5 base in 2020. Meanwhile, the growth contribution of exports ppt in Q4 2023, reflecting a return to pre-pandemic levels. turned negative in 2023 as global trade saw the slowest growth Robust financial and insurance activities, steady growth of outside global recessions in the past 50 years. The strong wholesale and retail trade activities, and the continued recovery of tourism and IT-BPO activities was more than offset recovery of tourism activities fueled services growth. The by the contraction in merchandise trade as anemic global growth contribution of the industry sector declined to 1.0 ppt industrial production and soft demand for consumer in Q4 2023 (1.4 ppt in Q4 2022) weighed by the weakness in electronics impacted demand for the Philippines’ main export manufacturing exports. Agriculture’s growth contribution commodities such as electronics products. inched up to 0.1 ppt, as higher farmgate prices led to increased Weak external demand led to softer growth in manufacturing crop production and as livestock production rebounded activities while recovery of tourism activities supported following a disease outbreak for hogs in 2022. services. Manufacture of electronics, food products, and Robust private consumption and better-than-expected beverages drove the 1.9 percent increase in the volume of investment growth supported economic activity. Private production index (VoPI) in November. However, the expansion consumption was the main growth driver on the demand side, was below the 6.4 percent growth in November 2022 due to bolstered by a robust labor market and steady remittances. weakness in external demand for manufactured products. The However, the growth contribution fell by 1.3 ppt of GDP decline in the Philippines’ S&P PMI to 51.5 in December due to because of still high, albeit declining inflation and a slower growth in new orders suggests subdued manufacturing normalization in pent-up demand. The growth contribution of activity to end the year. However, this remains the second private investment increased by three-fold to 2.4 ppt of GDP highest PMI reading among ASEAN peers, next to Indonesia in Q4 2023 despite high interest rates, driven by strong (52.2) and outpaced the global PMI (49.0). In 2023, the country construction activity and purchase of big-ticket items in air recorded 5.4 million tourist arrivals, more than twice the Figure 1: Private consumption and investment spending fueled growth. Figure 2: Services was the main growth engine in Q4 2023. on thehmand side. 30 30 20 20 10 10 Percentage point Percentage point 0 0 -10 -10 -20 -20 -30 -30 -40 -40 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Exports Imports Capital Formation Agriculture Other industries Government Consumption Manufacturing Services Household Final Consumption Expenditure Gross Domestic Product Gross Domestic Product Source: Philippines Statistics Authority. Source: PSA. q PHILIPPINES Monthly Economic Developments | January 2024 Source: PSA. arrivals in 2022, and nearly 80 percent of the pre-pandemic goods imports expanded by 10.6 percent in December, fueled average, suggesting space for further recovery. by robust private consumption. The trade balance narrowed by 11.0 percent y/y during the month and amounted to -10.5 The cumulative fiscal deficit as of November 2023 shrunk to percent of nominal GDP in Q4 2023. 5.1 percent of year-to-date GDP, as ongoing fiscal consolidation led to a decline in current spending. On a Inflation fell to within the central bank’s 2-4 percent target cumulative basis, revenues declined by 0.3 ppt of GDP as of for the first time in 22 months due to lower energy and food end-November 2023 compared to the same period last year. prices. Headline inflation slowed to 3.9 percent y/y in The decline in revenues was driven by lower tax collections, as December (4.1 percent in November), though still the highest tax collections from both the Bureau of Internal Revenue and among peers in the ASEAN region. A combination of favorable Bureau of Customs declined in November. Meanwhile, base effects, falling global energy prices, and improving food cumulative public spending fell by 1.4 ppt of GDP as a result of supply contributed to cooling inflation. However, price of ongoing fiscal consolidation and lower fiscal transfers to Local staple commodities such as rice remained elevated (19.6 Government Units. Infrastructure outlays continued to drive percent y/y) due to rising imported rice prices. Core inflation public spending growth in 2023, although capital outlays continued to fall to 4.4 percent y/y in December (4.7 percent contracted in November due to operational issues that in November), suggesting sustained easing of underlying price delayed project disbursements into December. The debt-to- pressures. The Bangko Sentral ng Pilipinas kept the key policy GDP ratio fell by 0.7 ppt of GDP to 60.2 percent of GDP in end- rate steady at 6.5 percent in December. The government 2023. extended the reduction of import tariff rates for pork, rice, and corn until the end of 2024. Softer demand from international markets led to continued sluggishness in goods trade. Weak external demand, as Strong domestic activity during the holidays pushed the reflected in the softness in December’s global manufacturing unemployment rate to an 18-year low in November, although Purchasing Managers’ Index (PMI) for new export orders led to the quality of jobs remains a concern. The unemployment rate a 0.5 percent y/y drop in goods exports (13.0 percent drop in fell from 4.2 percent in October to 3.6 percent in November, November 2023). The decline in exports was fueled by the well below the pre-pandemic level of 5.1 percent in 2019. double-digit contraction in exports of mineral products and Holiday spending boosted business activities, fueling the growth of exports of manufactured goods slowed to 0.5 month-on-month employment growth in wholesale and retail percent with 11 out of the 16 manufactured goods commodity trade, accommodation and food services, and transportation groups registering export declines. Meanwhile, goods imports sectors. However, the added jobs were of poor quality, as fell by 5.1 percent as the slowdown in new orders dented reflected by the rise of share of elementary occupations imports of raw materials and intermediate goods (-5.8 associated with lower pay from 27.1 percent in October to 30.3 percent) and as the decline in global commodity prices led to percent in November. a reduction in the imports of mineral fuels, lubricants, and other related materials (-27.2 percent). However, consumer Figure 3: Inflation fell within central bank target in December 2023 as Figure 4: Manufacturing remained upbeat as tourism drive services food and utilities inflation eased. activities. 12 Headline inflation Purchasing Managers' Index (PMI) Food and non-alcoholic beverages 10 Core inflation 70 BSP policy rate 8 60 Percent 6 50 4 40 2 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov - 2022 2023 Sep Sep Sep Jan Mar May Mar May Mar May Jul Jan Jan Nov Jul Nov Jul Nov Services (PISM) Retail & Wholesale (PISM) Note: For S&P Global PMI, an index above 50 indicates an expansion, 2021 2022 2023 and an index below 50 implies a contraction. Data are seasonally adjusted. Source: PSA and BSP. Source: BSP and S&P Global. PHILIPPINES Monthly Economic Developments | January 2024 Source: Philippin FF q Developments to Watch • Inflation: Will inflation continue to fall within the BSP’s target range in January 2023? • Fiscal: Will the Philippine government reach its full-year fiscal target? • Trade: Will the deceleration in global trade continue affecting export dynamism at home? Prepared by a World Bank team consisting of Macroeconomics, Trade, and Investment Global Practice, under the guidance of Gonzalo Varela, Lars Christian Moller and Ndiame Diop. 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, please refer to the Philippine Economic Update. PHILIPPINES Monthly Economic Developments | January 2024 Contact Kevin Cruz (kcruz@worldbank.org) for questions.