PH Economy Taking Off

After the Yolanda Storm Surge:

PH Economy Rides the Crest Victor A. Abola, Ph.D

Outline

From the Rubble of Yolanda Domestic Demand Intact External Sector Boost Real Estate Bubble? Macroeconomic Forecasts Summary

Source: National Statistical Coordination Board (NSCB)

GDP GROWTH RATE (Quarterly, y-o-y) 2001-Q1 to 2013-Q3

0

1

2

3

4

5

6

7

8

9

10

20

01

-Q1

20

02

-Q1

20

03

-Q1

20

04

-Q1

20

05

-Q1

20

06

-Q1

20

07

-Q1

20

08

-Q1

20

09

-Q1

20

10

-Q1

20

11

-Q1

20

12

-Q1

20

13

-Q1

GDP Growth (%) GDP Mean (4.92%) GDP 5%

GDP Growth on Acceleration Mode On Target to 7.0% Gain in 2013

Cost of Reconstruction

NG estimate based on UN methodology

Item PhP

Shelter Reconstruction and Resettlement 183.3

Public Infrastructure 28.4

Education and Health Services 37.4

Agriculture 18.7

Industry and Services 70.6

Local Government 0.4

Social Protection 18.4

Total 360.8

Total in US$ 8.0

I. From the Rubble of Yolanda

Timing Total NG

Spending P-B Aid

FX Loans

Peso Loans

% of GDP

2013 34.0 10.0 -

2014 100.0 22.5 45.0 32.0 0.2

2015 127.1 22.5 45.0 59.3 0.3

2016 100.0 5.0 22.5 72.5 0.4

Total 60.0 112.5 163.8

•Peso Loans Within New Budget (Realignments)

•FX Loans Likely Additional

I. From the Rubble of Yolanda

All domestic sectors will be humming

II. Domestic Demand Intact

Q1-Q3 2013 2014 Domestic Demand: 9.4% 8.0% Spending view:

Consumption Spending 5.5% 6.2% Government Spending 12.8% 8.0% Investment Spending 23.2% 16.0% Construction 18.0% 20.0%

Basis for 2014 Consumption Spending: Peso Depreciation & Export Gains Government Spending: Reconstruction Investment Spending:

Public Construction - Reconstruction Durable Equipment - Power, Water, Property, Airlines, Mfg

.

All domestic sectors will be humming

II. Domestic Demand Intact

Production view: for 2014

Agriculture (sub-par recovery: coconut industry) Industry (robust) Mfg, Construction, EGW) Services (steady growth)

BPO - 15% Tourism - 12%

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Tourist Arrivals (2001-2013)

Tourist Arrival for Jan-Sept 2013 hit: 3.5M or 11.40% increase from the same period last year.

16.7%

11.3%

9.1%

Shortage of 3-5 Star Hotels

Source: Department of Tourism (DoT)

III. External Sector Boost

US, Japan

Recovery

Gain

Traction

Euro-zone

Moves to

Positive

Territory

Crude Oil

Prices to

be soft -Iran

-US & Canada

GDP Outlook (2011-2014)

Source: IMF-WEO Oct 2013

Region/Country 2011 2012 2013 2014

World 3.9 3.2 2.9 3.6

Advanced Economies

1.7 1.6 1.2 2.0

US 1.8 2.8 1.6 2.6

Japan (0.6) 2.0 2.0 1.2

Euro zone 1.5 (0.6) (0.4) 1.0

Developing Asia 7.8 6.4 6.3 6.5

Asean-5 4.6 6.2 5.0 5.4

World Economy looks better in 2014 esp. US, Euro zone

US Job New Creation

250,000+ jobs/mo. needed for strong recovery

2013 Average Monthly

Job Gains

185,000....

Nov 2013 was 205,000

Housing Starts

Exceeds 1.0 MM units in Nov. Housing Prices on the Rise

Crude Oil Prices and % Change

Softer crude oil prices expected in 2014

2012 2013 2014

West Texas Intermediate 94.12 97.64 95.00

% change (0.8) 3.7 (2.7)

Brent 111.65 108.41 104.08

% change 0.4 (2.9) (4.0)

Threats to Growth

China: “Hard-landing” o 7.2% GDP Growth Still Good o Structural problems to unravel 3-5

years ahead

Real estate bubble? o Various approaches o Trouble in 3-5 years if trend continued o Remedial measures being put in place

Residential Construction

1,000

10,000

Log scale

000 m2

Slope in 1992-96 steeper than 2007-2012

Residential Construction Bubble?

All data show current trends below long-term trend & esp. 1986-1999

Periods Covered

1986-2012 1986-1999 1999-2012 2005-2012

Total Loans KB (P Mill) 91,827 1,354,228 1,338,083 3,219,417

p.a. Growth 14.7% 23.0% 6.9% 13.4%

Loans - Real Estate (P Mill) 2,909 201,411 199,887 578,326

p.a. Growth 22.6% 38.5% 8.5% 16.4%

M3 (P Mill) 144,325 1,365,098 2,322,049 5,171,689

p.a. Growth 14.8% 18.9% 10.8% 12.1%

Residential Const (000 m2) 2,105 5,814 8,460 13,138

p.a. Growth 7.3% 8.1% 6.8% 7.1%

Cyclical Residential

6-year Cycle

Moderated in Q3 – 2013/ Danger: high-end

Reference Trend

IV. Real Estate Bubble?

US, Japan

Recovery

Gain

Traction

Euro-zone

Moves to

Positive

Territory

Crude Oil

Prices to

be soft -Iran

-US & Canada

Even if mortgage rates rise by 3% points, huge numbers qualify for loans

Year HAI at Current Rates

No. Of Deciles of Families

No. Of Families Qualified

Interest Rates Rise

by 3%

Difference (Mill)

Socialized

2006 105.8 2 1.4 M

2012 114.8 3 2.3 M 1.4M (0.9)M

Low-Cost

2006 130.6 1 0.9 M

2012 177.3 1 1.6 M 1.4M (0.2)M

IV. Real Estate Bubble?

US, Japan

Recovery

Gain

Traction

Euro-zone

Moves to

Positive

Territory

High end oversupply

Banks starting to feel past dues/defaults

Banks & BSP will put more stringent requirements

Bubble will be avoided at Economic Housing & Lower

V. Macroeconomic Forecasts

GDP growth to accelerate due to added Reconstruction Work + Robust Private Sector

2011 2012 2013 2014

Inflation Rate (avg % Δ) 4.5 3.2 3.0 4.0

Peso-Dollar Rate (end) 43.93 41.50 41-43 43-46

Gross Int'l Reserves ($B) 75.4 84.5 86.0 95.0

GDP Growth Rate 3.9 5.8 7.0 7.3

Industry Sector 4.1 5.5 8.0 9.7

Services Sector 5.3 6.5 6.8 7.0

VI. Summary

Domestic Demand Remains Robust

External Demand to Improve in 2014

Inflation will be at middle of 3-5% Target

No likely asset bubble; thanks to remedial actions

PH Economy Taking Off

After the Yolanda Storm Surge:

PH Economy Rides the Crest Victor A. Abola, Ph.D