1. Economic outlook Strong recovery from the global financial crisis October 2010

2. Following global financial crisis, a V-shaped recovery in 2010
Sources: NSCB, ATRKE

3. Where did growth come from? — Industry and services
+3.5
+3.2
+5.2
+4.8
+1.7
+1.5
+1.2
+0.2
-0.6
-0.5
-0.5
-1.7
Sources: NSCB, ATRKE

4. In industry — high growth in manufacturing & construction
+5.2
+4.8
Slower manufacturing growth in 10Q2 offset by stronger contribution from construction
+1.2
-1.7
Sources: NSCB, ATRKE

5. Recovering economies boosted exports  manufacturing
Global financial crisis affected economy through plummeting exports
Sources: NSCB, ATRKE

6. Elections buoyed public construction and . . . private did well too
Earlier recovery probably due to Ondoy reconstruction
Avoiding election ban on infra projects
Sources: NSCB, ATRKE

7. Can strong growth be sustained beyond 1H10? Yes . . .
because economy not burdened by high debt levels
Households typically are savers, aided by OFW remittances.
Corporate sector has been paying down debt since the Asian crisis of
Government ran bigger budget deficits in to stimulate economy during global financial crisis. V-shaped recovery allows withdrawal of fiscal stimulus.
because banking sector not compromised by “toxic assets” can perform its function of extending loans to support growth
But growth likely to be slower in 2H10 compared with 1H10 due to absence of one-off factors like elections.

8. OFW remittances continue to grow robustly . . .
Sources: BSP, ATRKE

9. . . . bolstering private consumption (in contrast to US)
Private consumption is about 2/3 and 3/4 respectively of US and Philippine economies
Sources: CEIC, ATRKE

10. Weak US growth because of deleveraging
Mar US$20.2t Dec 2008 US$38.0t June 2010 US$35.3t
Source: CEIC

11. In general, according to IMF research
“Recoveries from recessions associated with financial crises were found to be slower relative to a typical recovery.” In advanced economies, recoveries from financial crises feature a near-absence of growth in credit.
Behavior of credit and output during recoveries                                                                                                                
Prakash Kannan, IMF, The lingering effects of financial crises, 19 Nov 2009

12. Smaller deficit ratio expected (higher in advanced economies)
Source: IMF

13. Specific advanced economies with government deficit issues
Source: IMF

14. Lower debt ratio (unlike developed countries in general)
Source: IMF

15. Specific advanced economies with government debt issues
Source: IMF

16. To reduce deficit, aim to grow tax collection with no new taxes
Sources: BTr, NSCB, ATRKE

17. and strengthening peso
Higher GDP growth than advanced economies attracting capital
and strengthening peso
Sources: CEIC

18. Strong peso dampens inflation—more than 2009 but below trend
Sources: NSO, ATRKE

19. Low inflation will tend to keep interest rates low
Source: CEIC

20. External demand likely to weaken
Because of slow growth in OECD, export growth may stall
Strong peso will make exports more expensive
Strong peso will lessen value of OFW remittances
Contribution of exports and OFW remittances likely to decline
GDP
Greece
Italy
Philippines
Portugal
Spain UK US
OECD
2006
4.5
2.0
5.3
1.4
4.0
2.8
2.7
3.0
2007
1.5
7.1
2.4
3.6
1.9
2008
-1.3
3.7
0.0
0.9
-0.1
0.2
2009E
-2.0
-5.0
1.1
-2.6
-3.7
-4.9
-3.2
2010F
-4.0
1.0
7.0
-0.3
1.7
2.6
2011F
0.7
2.3
2.2
2012F
0.6
1.8
2013F
2.1
2.9
2014F
1.3
1.2
2.5
2015F
Source: IMF

21. Domestic demand expected to take up slack
Low inflation and interest rates, strong peso will benefit private consumption and investment
Government will increase investments through public-private partnerships
Foreign direct investment may rise because of attractive growth prospects
All the above could improve domestic employment

22. Optimism likely to translate to improving domestic growth
Source: CEIC

23. Public-private partnership projects (may be presented in Nov)
Extension of the Light Rail Transit (LRT) Line 1 to Bacoor, Cavite (P70b)
Extension of the LRT Line 2 to Masinag Junction in Antipolo (P11.3 billion)
A new airport in Bohol (P7.5 billion)
A "city terminal" for the Diosdado Macapagal International Airport in Pampanga (cost to be determined)
Privatization of the operation and maintenance contract of the Laguindingan airport in Misamis Oriental (cost to be determined)
A new airport in Puerto Princesa (P4.4b)
An expressway connecting the North and South Luzon tollways (P21b)
The Cavite-Laguna Expressway (P10.5b)
Supply of treated bulk water for Metro Manila (cost to be determined)
A new airport in Daraga, Albay
As reported in Businessworld

24. Economic forecasts 2007 2008 2009 2010F Ytd 2011F
GDP growth, % change H
NG budget balance, Pb M
as % of GDP H
Current account, US$b H
as % of GDP H
International reserves, US$b Sep
Consumer inflation, % Y/Y M
91-d T-bill rate, avg, % pa Ytd
Exchange rate, avg, P/US$ Ytd

25. Risks to economic forecasts
Political risks
(1) Execution risks with new government – implementation of lower deficit ratio crucial to spending plans
Inflation risks
(3) Surge in international commodity prices especially food and fuel
(4) Downward stickiness of power rates because of supply issues
Growth risks
(5) Double-dip recessions in developed countries because of fiscal crisis
(6) Early implementation of exit strategies for fiscal and monetary stimulus packages