1、BRACING FOR HEADWINDS,ADVANCING FOOD SECURITYDECEMBER 2022PHILIPPINES ECONOMIC UPDATEToCPhoto by:Aver Justin Parado/World BankPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPhilippines Economic Update December 2022I IToCTable of Conten

2、tsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications

3、 for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook The Philippines Economic Update(PEU)summarizes key economic and social developments,important policy changes,and the evolution of external conditions over the past six months.It also presents findings from rec

4、ent World Bank analyses,situating them in the context of the countrys long-term development trends and assessing their implications for the countrys medium-term economic outlook.The update covers issues ranging from macroeconomic management and financial-market dynamics to the complex challenges of

5、poverty reduction and social development.It is intended to serve the needs of a wide audience,including policymakers,business leaders,private firms and investors,and analysts and professionals engaged in the social and economic development of the Philippines.The PEU is a biannual publication of the

6、World Banks Macroeconomics,Trade,and Investment(MTI)Global Practice(GP),prepared in partnership with the Finance,Competitiveness and Innovation(FCI);Poverty and Equity;Social Protection and Jobs(SPJ);Agriculture Global Practice(Ag);and Governance Global Practices.Lars Christian Moller(Practice Manag

7、er for the MTI GP),Souleymane Coulibaly(Lead Economist and Program Leader),and Ralph van Doorn(Senior Economist)guided the preparation of this edition.The team consisted of Kevin Chua(Senior Economist),Kevin Cruz(Economist),Ruijie Cheng(Young Professional),Eduard Santos,Ludigil Garces and Patrizia B

8、enedicto(Consultants)from the MTI GP;Radu Tatucu(Senior Financial Sector Specialist)and Uzma Khalil(Senior Financial Sector Specialist)from the FCI GP;Nadia Belghith(Senior Economist),Sharon Piza(Economist)and Karl Jandoc(Consultant)from the Poverty&Equity GP;Yoonyoung Cho(Senior Economist),Ruth Rod

9、riguez(Social Protection Specialist)and Ma.Laarni Revilla(Consultant)from the SPJ GP;and Nkosinathi Mbuya(Senior Nutrition Specialist)from the Health GP.A World Bank team from the Agriculture and MTI GPs,consisting of Anuja Kar(Senior Agriculture Economist),Mio Takada(Senior Agriculture Economist),M

10、a.Theresa Quiones(Senior Rural Development Specialist),Animesh Shrivastava(Lead Agriculture Economist),John Nash(Consultant),Roehl Briones(Consultant)and Kevin Chua,prepared the Special Focus Note on Ensuring Food Security for All:Repurposing Public Investments,under the guidance of Dina Umali-Deini

11、nger(Practice Manager)and Lars Moller.The report was edited by Oscar Parlback(Consultant),and the graphic designer was Pol Villanueva(Consultant).Peer reviewers were Dhruv Sharma(Senior Economist),Ergys Islamaj(Senior Economist),Irina Schuman(Senior Agriculture Economist),and Ruslan Piontkivksy(Seni

12、or Economist).Logistics and publication support were provided by Geraldine Asi(Team Assistant),Mildren Peales(Team Assistant),and Hunter Tiro(Consultant).The External Communications Team,consisting of Clarissa David,David Llorito and Stephanie Margallo,and Justine Letargo(Consultant)prepared the med

13、ia release,dissemination plan,and web-based multimedia presentation.The team would like to thank Ndiame Diop(Country Director for Brunei,Malaysia,Philippines,and Thailand)for his advice and support.The report benefited from the recommendations and feedback of various stakeholders in the World Bank a

14、s well as from the government,the business community,labor associations,academic institutions,and civil society.The team is grateful for their contributions and perspectives.The findings,interpretations,and conclusions expressed in the PEU are those of the authors and do not necessarily reflect the

15、views of the World Banks executive board or any national government.If you wish to be included in the email distribution list for the PEU and related publications,please contact Geraldine Asi(gasiworldbank.org).For questions and comments regarding the content of this publication,please contact Kevin

16、 Chua(kchua1worldbank.org).Questions from the media should be addressed to David Llorito(dlloritoworldbank.org).For more information about the World Bank and its activities in the Philippines,please visit www.worldbank.org/ph.PREFACEPhilippines Economic Update December 2022I I IToCTable of ContentsE

17、xecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications fo

18、r financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook PrefaceiiTable of ContentsiiiList of figuresivList of tablesvList of boxesvAbbreviations and acronymsviExecutive SummaryviiPart I.Recent Economic and Policy Developments61.1 Economic Growth:Outperforming Expectat

19、ions 71.2 External Sector:Widening Deficits and Weakening Currency 91.3 Inflation and Monetary Policy:Tighter Stance amid High Inflation 131.4 Fiscal Policy:Towards Consolidation 151.5 Employment and Poverty:Labor Market Vulnerabilities amid the Economic Recovery 17Part II.Outlook and Risks202.1 Gro

20、wth Outlook 212.2 Poverty and Shared Prosperity272.3 Risk and Policy Challenges28Part III.Ensuring Food Security for All:Repurposing Public Investments353.1 Introduction 363.2 The Effectiveness of Public Spending 383.3 Implications for Financial and Functional Devolution resulting from the Mandanas

21、Ruling423.4 An Action Agenda for Agriculture44Annex148Bibliography49TABLE OF CONTENTSNOTE:CLICK THE SIDE BUTTONS TO GO TO THE SECTION YOU WANT TO READ OR GO TO THE TABLE OF CONTENTS(TOC).CLICK HOME BUTTON TO GO BACK TO TOC PAGEPhilippines Economic Update December 2022I VToCTable of ContentsExecutive

22、SummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financ

23、ial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookList of figuresFigure 1.The economic recovery is underway in 2022.7Figure 2.The services sector significantly contributed to growth in Q1-Q3 2022,8Figure 3.buoyed by strong domestic demand.8Figure 4.Strong merchandise imp

24、orts have widened the trade deficit.10Figure 5.The current account deficit drove the BOP shortfall.10Figure 6.Regional currencies have depreciated against the US dollar.10Figure 7.Global economic activity has slowed amid deteriorating investor sentiment.12Figure 8.Global tourism has started to recov

25、er as countries relax pandemic restric-tions.12Figure 9.Inflation rose due to elevated food and energy prices.14Figure 10.The BSP tightened its monetary policy in response to elevated inflation.14Figure 11.The banking sector is showing signs of improvement,as the share of NPLs and restructured loans

26、 declined.14Figure 12.The fiscal deficit narrowed in H1 2022.16Figure 13.About two-third of the national debt is domestic debt.16Figure 14.Female labor force participation has increased in recent months 18Figure 15.while the unemployment rate continues to fall.18Figure 16.Poverty incidence by Region

27、,20182021.19Figure 17.Food and energy account for a high share of total expenditure among poor households.19Figure 18.Growth is expected to be lower in 2023,dragged by the unfavorable external environment.21Figure 19.Global commodity price pressure is weakening22Figure 20.Consumer confidence dropped

28、 in the previous quarter with household concerns over rising prices.25Figure 21.Actual and projected US$3.65-a-day poverty rates.27Figure 22.National Government Expenditures(Obligation Basis),20212023.30Figure 23.Stunting Rates in Selected Countries,1990-2020.33Figure 24.Sectoral share(%)of employme

29、nt,2002-2019.36Figure 25.Incidence and magnitude of poverty among population groups,2006 18(%).37Figure 26.Prevalence of moderate or severe food insecurity in percent(3-year aver-age).37Figure 27.DA share to total budget ratio(%).38Figure 28.DA Appropriation Levels in Php Billions,and as a Ratio to

30、Agricultural GVA(%).38Philippines Economic Update December 2022VToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food

31、 Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookFigure 29.Allocation of National Government Expenditures for Agriculture and Agrarian Reform,20202022(in Php billions).39Figure

32、30.Allocation to the Commodity Banner Programs,20152019,in Php Millions.40Figure 31.TFP Growth in Agriculture(%)41Figure 32.Rice yields around the world,2000-2020(ton/ha).41Figure 33.Comparison of Regional Ranking Based on Different Agricultural Indicators,2018.41Figure 34.Government Allocations for

33、 Agriculture to LGUs,by LGU Level.42List of tablesTable 1.Economic Growth,2019-2030f23Table 2.Economic Indicators for the Baseline Projections25Table 3.Comparison of Regional Ranking Based on Different Agriutural Indicators,201848List of boxesBox 1.Recent Global Developments11Box 2.Global Outlook an

34、d Risks23Box 3.Trends on Global Commodity Prices and Implications for the Philippines 26Box 4.Proposed 2023 National Government Budget30Box 5.Investing in Nutrition in the Philippines:An Essential Foundation for Sus-tained Economic Growth32Box 6.Advantages of Decoupled Payment47Philippines Economic

35、Update December 2022V IToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effect

36、iveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookABBREVIATIONS AND ACRONYMSAFMA Agriculture and Fisheries Modernization ActAgGDP Agricultural GDPAPIS Annual Poverty Indicator SurveyBARMM Bangsamoro Autonomous Region in

37、 Muslim MindanaoBBL One stock tank barrelBCDA Bases Conversion Development AuthorityBIR Bureau of Internal RevenueBOC Bureau of CustomsBOP Balance of paymentsBPS Basis pointsBSP Bangko Sentral ng PilipinasBTr Bureau of TreasuryCAR Cordillera Administrative RegionCPI Consumer Price IndexCSA Climate S

38、mart Agriculture DA Department of AgricultureDAR Department of Agrarian ReformDBM Department of Budget and ManagementDILG Department of the Interior and Local GovernmentDOF-BLGF Department of Finance-Bureau of Local Government FinanceDTP Devolution Transition PlanEAP East Asia PacificEF Equalization

39、 FundEMDEs Emerging Markets and Developing EconomiesEO Executive OrderF2C2 Farm and Fisheries Clustering and Consolidation ProgramFDI Foreign Direct InvestmentFMRs Farm-to-Market roadsGDP Gross Domestic ProductGHGs Greenhouse gasesGOCCs Government-Owned and Controlled CorporationsGVA Gross Value Add

40、ed HFS High Frequency Household SurveyIRA Internal Revenue AllotmentIT-BPO Information technology-business process outsourcingLFPR Labor Force Participation Rate LFS Labor Force SurveyLGC Local Government CodeLGU Local government unitMMBtu Million British thermal unitNCR National Capital RegionNFA N

41、ational Food AuthorityNIA National Irrigation AuthorityNNC National Nutrition CouncilNPL Non-performing loanNTA National Tax AllotmentNTBs Non-Tariff Barriers to TradeO&M Operations and MaintenanceOFs Overseas FilipinosOPEC Organization of Petroleum Exporting CountriesOSEC Office of the Secretary PF

42、MAT Public Financial Management Assessment ToolPhilRice Philippine Rice Research InstitutePHP Philippine PesoPMI Purchasing Managers IndexPMNP Philippines Multisectoral Nutrition ProjectPPP Purchasing power parityppts Percentage pointsPRDP Philippines Rural Development Project PSA Philippine Statist

43、ics AuthorityPSY Philippine Statistical Yearbook TFP Total factor productivity UNICEF United Nations Childrens FundWHO World Health OrganizationWTO World Trade Organization Philippines Economic Update December 2022V I IToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth

44、1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutl

45、ook&Risks2.1 Growth OutlookEXECUTIVE SUMMARY Recent DevelopmentsThe Philippine economy has remained resilient despite a challenging external environment.The economy expanded by 7.7 percent,year-on-year,in the first three quarters of 2022,fueled by strong domestic demand.Domestic activity was buoyed

46、by the economic reopening,release of pent-up demand,and improved labor market conditions.The reopening benefitted the contact-intensive services sector,while the public infrastructure investment program fueled construction and industry growth.However,growth in manufacturing moderated due to lower ex

47、port demand and base effects from the previous year,while agriculture performed modestly amid the impact of typhoons,rising input costs,and low sectoral productivity.On the demand side,private consumption accelerated on the back of recovering household incomes,and sustained remittance growth.Capital

48、 investment growth anchored on renewed private sector optimism and sustained public investment.However,government consumption slowed as the government continued to unwind fiscal support for the pandemic,while net exports weakened amid low external demand.Inflation accelerated due to price pressure f

49、rom elevated global commodity prices and a tight domestic food supply.Headline inflation averaged 5.4 percent in the first ten months of 2022,higher than 4.0 percent in the same period in 2021.High global commodity prices and currency depreciations fueled domestic inflation,as the country is a net i

50、mporter of most staple foods,fertilizer,and fuel.In addition,weather disturbances and lower domestic production of certain commodities such as sugar and salt have also pushed food prices higher.Higher energy prices spilled over utilities and transportation costs.Excluding volatile food and energy it

51、ems,core inflation rose to 3.4 percent in JanuaryOctober 2022,up from 3.1 percent in the same period last year.The increase indicated underlying price pressures and heightened inflation expectations in recent months.In response to rising inflation and peso depreciation,the BSP has tightened its mone

52、tary policy.Between May and November 2022,it raised the key policy rate by 300 basis points(bps)to 5.0 percent,and it has signaled further increases in step with the hawkish monetary stance of the US Federal Reserve.The Balance of Payments(BOP)deficit,along with the rising interest rate differential

53、 and general strengthening of the US dollar,led to a significant depreciation of the peso.In the first half of 2022,robust domestic demand and high commodity prices underpinned the surge in merchandise imports,which outpaced the growth in net services exports and foreign remittances.This led to the

54、widening of the current account deficit,which was financed by increased borrowings and net financial inflows.Nevertheless,the balance of payments deficit widened to 1.6 percent of GDP in the first half of 2022 from 1.0 percent of GDP in the first half of 2021.Against the backdrop of continued moneta

55、ry tightening abroad,the BSP-registered investments reported net outflows in the third quarter of 2022.The BOP shortfall,along with the rising interest rate differential and the general strengthening of the US dollar,led to a significant depreciation of the peso in the first ten months of 2022.Highe

56、r revenue collections and lower-than-programmed expenditures led to a narrower fiscal deficit in the first three quarters of 2022.Public revenues increased to 17.1 percent of GDP in the first three quarters of 2022 from 16.3 percent of GDP in the same period last year.Customs collection exceeded its

57、 target amid strong imports demand and higher excise tax collections.Internal revenue collection rose on more robust domestic activity and efforts to strengthen digitalization and tax administration.Meanwhile,public spending declined from 24.6 percent of GDP to 23.6 percent of GDP during the same pe

58、riod.Current spending retreated in line with efforts to unwind pandemic support while capital spending fell short of the government program.The increase in public revenues and the decline in public spending led to a narrower fiscal deficit from 8.3 percent of GDP to 6.5 percent of GDP in Q1-Q3 2022.

59、However,the fiscal deficit resulted in an increase in the national debt ratio to 63.7 percent of GDP as of end-September 2022.Still,the debt composition remains favorable with high share of peso-denominated(68.5 percent of total debt),and medium-and long-term debt(96.2 percent of the total debt).Phi

60、lippines Economic Update December 2022V I I IToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.

61、1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookThe labor market continued to recover but the recovery is underscored by a higher share of low quality jobs than before the pandemic.The economic r

62、eopening allowed more individuals to participate and find jobs in the labor market.The labor force participation rate(LFPR)rose to 65.2 percent in September 2022,above the pre-pandemic level of 61.7 percent in January 2020.Even with increasing labor force participation,the unemployment rate declined

63、 from 8.9 percent in September 2021 to 5.0 percent in September 2022.This indicated that the labor market accommodated jobseekers,including new labor market entrants and young adults.Underemployment,which was high and volatile during the pandemic,appeared to be stabilizing on a downward trend in 202

64、2,although it rose between June and September.Nevertheless,the employment recovery was accompanied by a higher share of elementary occupations associated with low pay,and part-time workers than pre-pandemic levels in January 2020.There has also been an increase in the share of self-employed and non-

65、paid workers,indicating growing informality in the labor market.Outlook and RisksThe external environment has further deteriorated with the realization of key downside risks,identified in the Philippines Economic Update,June 2022 edition.Global growth is expected to decelerate in 2022 and 2023,refle

66、cting synchronous monetary tightening,worsening financial conditions,and continued disruptions due to the war in Ukraine.The ensuing weaker global demand is weighing on global industrial production and trade,which has decelerated since the start of the second half of 2022.Rapid monetary tightening s

67、pecially in advanced economies has led to capital outflows and currency depreciations in emerging markets and developing economies(EMDEs).These external challenges have channeled through the Philippines in the form of high inflation,peso depreciation,and capital market volatility.Robust domestic act

68、ivity is driving growth in 2022,but the deteriorating global environment is spilling into the economy and tempering its growth prospect.The economy is projected to grow at an upward-revised 7.2 percent in 2022 before declining to 5.7 percent on average in 2023-25.The economic reopening this year is

69、unleashing pent-up demand,contributing to jobs and incomes recovery,and benefitting the contact-intensive services sector.However,the unfavorable external environment and its spillover to the domestic economy will likely slow the growth momentum in the fourth quarter and into 2023.The growth slowdow

70、n in 2023 is premised on the fading of pent-up demand,alongside elevated inflation and higher interest rate environment that will temper domestic demand.The higher rates will lead to lower private credit and subdued investments at a critical time when public investment growth is expected to slow in

71、line with fiscal consolidation and a programmed decline of public infrastructure spending.As global growth is expected to decelerate next year,external demand from advanced economies,which are key buyers of Philippines merchandise exports,will be subdued.Medium-term growth will gradually approach it

72、s potential rate at 5.7 percent as the output gap closes in line with the cyclical recovery.The growth outlook is subject to downside risks at a time when the authorities face the challenging task of supporting recovery while taming inflation amid a narrowing policy space.With central banks across t

73、he world raising interest rates to combat inflation and governments withdrawing pandemic-related fiscal support,the synchronous policy actions could produce larger impacts than intended,both in tightening financial conditions and deepening the growth slowdown.The fear is that moderate shocks can til

74、t the global economy into recession,which will have dire consequences to the growth recovery in many EMDEs including the Philippines.The fear is aggravated by the risk of an escalation of geopolitical tensions and supply chain bottlenecks could further disrupt commodity markets and international tra

75、de.Escalating tension has already led to the curtailment of energy supplies to Europe.While most global commodity prices have eased since June,they remain higher than the averages in the past five years.If the current period of elevated inflation persists and de-anchors inflation expectations,centra

76、l banks may accelerate the pace of monetary policy tightening with consequences on credit and capital flows.Finally,as the pandemic has yet to be declared over,the risk of another COVID-19 wave hangs over the outlook.The immediate domestic challenge that faces the authorities is rising and high dome

77、stic inflation.High inflation will dampen household consumption,Philippines Economic Update December 2022I XToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prospe

78、rity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlookwhile the ensuing policy rate tightening will temper borrowings and investments.Infl

79、ationary pressure comes from multiple fronts including:(i)elevated global commodity and energy prices;(ii)international supply chain and logistics disruptions;(iii)currency depreciation;(iv)recovering demand;and(v)domestic supply constraints caused by weak agricultural outputs and impact of natural

80、disasters.Addressing the inflationary pressure means employing both monetary and non-monetary measures including freer importation,lower tariffs and non-tariff barriers to help augment domestic supplies as needed,support to agriculture production through extension services,seeds,and fertilizers,and

81、key policy rate hikes.Continued near-term monetary tightening is appropriate to prevent a de-anchoring of inflation expectations.High inflation tends to inflict the greatest harm on low-income households where inflation often outpaces wage growth,which these households rely on.Poorer households suff

82、er disproportionately given the higher share of food and energy on their expenditures.Monetary tightening is appropriate to prevent self-fulfilling expectation of rising inflation.Moreover,communicating monetary policy decisions clearly,and leveraging credible monetary frameworks will help limit the

83、 economic impact of the tightening cycle.Staying the course on fiscal consolidation signals commitment to fiscal sustainability.Fiscal consolidation has become more challenging in the current high inflation environment,which may compel the government to expand social support programs or extend subsi

84、dies at a time of narrower fiscal space.Targeted,instead of blanket,social assistance measures will help manage expenditure growth while maximizing returns of programs.Eliminating spending inefficiency and increasing value for money in public procurements will be instrumental to a consolidation stra

85、tegy.The authorities also need to employ new tax policy and administration measures to mobilize revenues.Over the medium term,building fiscal buffers,diminished during the height of the pandemic,will help mitigate against downside risks.The proposed 2023 national government budget lays out the mediu

86、m-term fiscal consolidation agenda,with target to reduce the fiscal deficits by 3.5 percentage points(ppts)of GDP between 2022 and 2025.Despite the public spending slowdown,it remains important to sustain investments in health and education to reduce vulnerabilities from the scarring impact of the p

87、andemic.The threat of a new variant-driven surge hangs over the outlook.Nevertheless,the country is better equipped to respond to re-emerging threats with high population vaccination coverage,and effective public health protocols.Shocks from the COVID-19 pandemic,however,have manifested themselves i

88、n child malnutrition and stunting,and reduced student learning especially among the poor.If unmitigated,these shocks may have persistent impacts on peoples wellbeing and damage future productivity,earnings,and innovation.For this reason,sustained investments in nutrition and education are imperative

89、 despite pressure for fiscal consolidation.The new administration will need to take swift and decisive action to confirm its commitment to its stated priorities.The new administration has laid out its eight-point socio-economic agenda,which aims to guide the economy back to its high-growth trajector

90、y.It has taken steps to reassure businesses and investors the continuity of public infrastructure program,business-friendly reforms,and growth-supporting macroeconomic policies.Structural reform initiatives are planned on the areas of public-private partnership,foreign participation in strategic ind

91、ustries,and tax policy and administration,among others.The release of the Philippines Development Plan 2023-2028 will be a welcome development as the plan provides a clear roadmap to achieving the countrys medium-term priorities.Over the medium term,effective public spending in the agriculture secto

92、r will help address low agricultural productivity and alleviate the challenge of food security in the country.Comprising less than 10 percent of GDP,agriculture has marginally contributed to economic growth in the past decades.Low productivity has hampered domestic food production,which,in turn,infl

93、uences the volatility of consumer price inflation.Nonetheless,the sector employs a disproportionate share of the labor force,significantly contributes to the household consumption basket among the poor,and therefore,crucial to the delivery of inclusive growth.The growth prospect remains poor due to

94、a combination of chronic underinvestment and intense vulnerability to weather-related shocks.To this end,the efficient use of public funds for public investments will help address the structural constraints of the sector,and deliver better extension services,stronger Philippines Economic Update Dece

95、mber 2022XToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Pu

96、blic Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlookvalue chain system,and improved business climate for agri-food system.Special Focus Ensuring Food Security for All:Repurposing Public InvestmentsThe growth momentum has been driven b

97、y key structural reforms,leading to a significant reduction in poverty in recent years.Agricultural policy has spurred some growth in the sector but falls short of sparking a structural transformation and dynamic development.Recently,the COVID-19 pandemic,the war in Ukraine,and adverse climatic and

98、other events(typhoons,floods,and African Swine Fever outbreak),have contributed to rising domestic food prices and heightened concerns about food security in the country,especially for the poor and vulnerable.The country remains vulnerable to climate shocks and mounting challenges on account of the

99、rising prevalence of food insecurity.Ensuring food security and sustained agricultural growth has been hampered by underinvestment in public goods in agriculture.The continued focus on supporting rice production has come at the expense of other agricultural products.As a result,Filipino consumers pa

100、y a very high price for food approximately 40%higher than the regional comparators.Sustaining agriculture growth is further complicated by the ongoing devolution resulting from the Mandanas Ruling of the Supreme Court,which transfers greater responsibilities for and financing of agriculture programs

101、 to local government units(LGUs).To take full advantage of the opportunities arising from the new strategic directions of the Department of Agriculture(DA)and the devolution of more responsibilities to LGUs,agricultural public expenditure policies must address three critical challenges:(i)changing s

102、trategic focus from an objective of self-sufficiency in specific commodities to align better with the administrations ambition of improving sectoral competitiveness and resilience to ensure food security for all,(ii)improving the effectiveness of the current spending,and(iii)dealing effectively with

103、 the public expenditure issues related to devolution.To address the challenges,this note proposes some policy recommendations and interventions.Policy RecommendationsInterventionsFocusing on diversification to ensure greater balance in sectoral priority-setting and resource allocation,and repurposin

104、g public agricultural expenditures in line with the strategic vision of the new administrationFood security is a function of income and the general availability of nutritious foods.In aspirational terms,it means moving toward an agri-food system that is:(i)resilient in the face of risks,(ii)inclusiv

105、e in the opportunities it provides and the consumers it services,(iii)competitive in domestic and international markets,and(iv)environmentally sustainable from farm to fork.Pursuing this agenda requires shifting from protecting a specific product(e.g.,rice)and type of farmer to improving the overall

106、 resilience,competitive-ness,and sustainability of the sector.One element is the transition in budget-ing from a commodity-based planning mechanism to more area-based,focus-ing on holistic objectives rather than production targets.A second element is to focus on programs that fund public goods that

107、are currently underfunded(e.g.,agricultural research).Investments in extension services ensuring greater thrust on capacity development for LGUsNew modes of communication between agents and farmers allow more effi-cient dissemination of information than the old face-to-face contact model.As extensio

108、n services are increasingly decentralized,investments in technologies that help local extension staff reach a larger number of farmers should have high payoffs.Continued thrust on capacity-building initiatives for the LGUs remains the key through guidelines,manuals,and guidebooks to improve delivery

109、 of extension services.Philippines Economic Update December 2022X IToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring F

110、ood Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook Scale up Climate Smart Agriculture(CSA)policies and programs to foster increased resilience of the agri-food system to weath

111、er shocks and reduce Green-house gases(GHG)emis-sions from the sector licy RecommendationsKey interventions are the following:Reform agricultural support policies to encourage more diversified produc-tion systems.Improve water management and pricing policies to increase incentives for efficient use.

112、Use legal and regulatory reform to provide greater tenure security for farm-ers to encourage investments in more resilient,integrated,and diversified agriculture systems.Support technology generation and dissemination to promote CSA technology adoption.Take advantage of the Mandanas process to build

113、 local capacity for mainstreaming CSA into policies and planning.InterventionsImprove budget priority to support programs that overcome barriers to farm consolidation and achieve-ment of economies of scaleThere is a need for increased focus on improving value chain coordination and integration under

114、 the Farm and Fisheries Clustering and Consolidation Program(F2C2)initiative,with government support for buyers and producer organizations in preparing and implementing profitable business plans.Measures to support collective action will also promote CSA investment options with high investment costs

115、,e.g.,solar-powered pumps,biodigest-ers,and small farm reservoirs,and therefore require joint action by groups of farmers.Procedural improvements on government budgeting institutions Getting the greatest value from public funds requires an efficient and effective process to plan and execute the budg

116、et and see how and where the govern-ment spends money.In particular,attention is needed in two areas:(i)to iden-tify the causes of low disbursement rates and resolve them;and(ii)to improve processes for evidence-and results-based monitoring and evaluation.Photo by:hijodeponggolPhilippines Economic U

117、pdate December 20226ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effective

118、ness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookPART 1RECENT ECONOMIC AND POLICY DEVELOPMENTSThe economic recovery continued through the third quarter of 2022 despite a challenging external environment that weighed on gl

119、obal trade,inflation,and global financing conditions.The economy expanded in the first three quarters of 2022,fueled by strong domestic demand.This was buoyed by the economic reopening,and improved labor market conditions.The unemployment rate has declined to its pre-pandemic level amid higher labor

120、 force participation.The fiscal deficit narrowed with growth in public revenues and winding down of pandemic support.However,inflationary pressure has strengthened,driven by high global commodity prices,supply disruption,currency depreciation,and recovering demand.In response,the Bangko Sentral ng P

121、ilipinas(BSP)raised the key policy rate by a total of 300 bps,so far this year.Photo by:Jed RegalaPhilippines Economic Update December 20227ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and

122、Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook1.1 Economic Growth:Outperforming Expectations The p

123、ost-pandemic recovery is underway driven by domestic demand.Although firming global headwinds have weighed on merchandise trade,the recovery has continued amid increasing household incomes,sustained remittances,and improved employment conditions.808590955120Q42019Q12020Q22020Q32020Q42020Q

124、12021Q22021Q32021Q42021Q12022Q22022Q32022Seasonally Adjusted Real GDP(2019-Q4=100)ThailandPhilippinesMalaysiaIndonesiaVietnamFigure 1.The economic recovery is underway in 2022.Source:Haver Analytics.The economy grew by 7.7 percent,year-on-year,in the first three quarters of 2022(4.9 percent in the s

125、ame period in 2021),as improving domestic conditions offset a challenging external environment.1 The reduction in COVID-19 cases paved the way for an economic reopening that,along with election-related activities,spurred domestic demand.Campaign activities boosted travel,accommodation,information an

126、d publishing,and communication industries.The removal of stringent containment measures led to improved employment outcomes to pre-pandemic levels and allowed for the release of pent-up demand.Moreover,the strong domestic recovery tempered the impact of global headwinds from the war in Ukraine,high

127、global commodity prices,and tightening global financing conditions.On a seasonally-adjusted basis,output in the Philippines has surpassed its pre-pandemic level,although the pace of recovery has been slower than in some regional peers(Figure 1).The authorities have accelerated the pace of economic r

128、eopening,including the full return to face-to-face classes in November 2022,given low COVID-19 cases and vaccination progress.The economic reopening buoyed the recovery of the services sector,which accounted for 70 percent of Q1-Q3 2022 GDP growth(Figure 2).The economic reopening benefitted the cont

129、act-intensive services sector,which grew by 8.9 percent from Q1-Q3 2022(4.4 percent a year ago).The removal of mobility restrictions and release of pent-up demand led to a growth acceleration in wholesale and retail trade,transportation,and accommodation and food services.In addition,construction re

130、bounded due to the public infrastructure investment program,fueling growth in the industry sector.However,growth in manufacturing fell to 5.3 percent in Q1-Q3 2022(down from 9.5 percent in the same period in 2021),as decelerating global demand for goods weighed on exports and manufacturing.In partic

131、ular,the slowdown in manufacturing was driven by the sharp deceleration in the growth of electronics manufactures,the countrys main export products.Moreover,the agriculture sectors tepid performance continued throughout the year,as output was impacted by typhoons,rising input costs,and low productiv

132、ity.1 All figures are on a year-on-year basis unless otherwise stated.Philippines Economic Update December 20228ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Pr

133、osperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookOn the demand side,growth was fueled by private consumption,supported by the rel

134、axation of containment measures and a recovery of household incomes(Figure 3).Private consumption grew by 8.9 percent in Q1-Q3 2022(up from 2.9 percent in Q1-Q3 2021).Rising household incomes,2 growth in remittances,and the reopening of the border to international tourism buoyed domestic demand.Dome

135、stic demand remained resilient as private consumption gained steam despite a sustained rise in inflation in the third quarter.Meanwhile,gross fixed investment growth accelerated to 12.0 percent in Q1-Q3 2022(up from 9.6 percent in 2021),fueled by renewed private sector optimism,private construction

136、activities,3 and growth in public investment.However,government consumption slowed to 5.5 percent in Q1-Q3 2022(from 6.9 percent in 2021),as the government continued to unwind fiscal support for the pandemic.Global headwinds weighed on merchandise exports while improved domestic conditions led to a

137、strong import demand.Although export growth accelerated to 9.3 percent in Q1-Q3 2022(8.1 percent in Q1-Q3 2021),global headwinds has started to weigh on trade.In particular,merchandise exports growth fell to 2.8 percent in Q1-Q3 2022(13.9 percent in Q1-Q3 2021),fueled by the slowdown in global deman

138、d,particularly from China.Services exports,meanwhile,expanded by 19.6 percent in Q1-Q3 2022(a reversal from a contraction of 0.1 percent a year ago),fueled by the growth rebound in travel(221.3 percent)and transport(68.9 percent).4 In addition,growth was supported by the continued strong performance

139、 of the information technology-business process outsourcing(IT-BPO)sector,5 which accounted for around three-fourths of the countrys services exports.Imports increased by 15.5 percent in the same period(up from 12.5 percent in Q1-Q3 2021),supported by strong domestic demand,and reflected in a broad-

140、based recovery of consumption goods,raw materials,and capital goods imports.Figure 2.The services sector significantly contributed to growth in Q1-Q3 2022,Note:Other industries are mining and quarrying,construction,electricity,gas,and water.Source:Philippine Statistics Authority(PSA).Figure 3.buoyed

141、 by strong domestic demand.Source:PSA.-20-18-16-14-12-10-8-6-4-202468101214Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q320022Percentage pointAgricultureManufacturingOther industriesServicesGDP growth-30-25-20-15-10-505101520Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q320021Percen

142、tage pointNet exportsInvestmentsGovernment ConsumptionHousehold Final Consumption ExpenditureGDP Growth2 Results from the most recent round of the World Bank High Frequency Household Survey(HFS)in May 2022 show that 51 percent of respondents report that they had the same level of income in May 2022

143、as they did prior to the pandemic,while 20 percent report that they had greater income than before the pandemic.Please refer to the Employment and Poverty section for a more detailed discussion.3 In particular,construction by financial and non-financial corporations grew by 20.3 percent in Q1-Q3 202

144、2 a sharp reversal from the contraction of 28.7 percent in Q1-Q3 2021.4 Over 1.6 million international travelers have arrived in the Philippines since the reopening in February 2022.5 The export of telecommunications,computer,and information services(12.5 percent)and business services(10.7 percent)c

145、ontinued to post strong growth in Q1-Q3 2022.Philippines Economic Update December 20229ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy

146、ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook1.2 External Section:Widening Deficits and Weakening Currency The large current account deficit overshado

147、wed net capital inflows,which widened the balance-of-payments deficit in H1 2022.In Q3 2022,the increase in investments outflow contributed to the peso depreciation,which registered a historic low against the US Dollar.Robust domestic demand and high commodity prices underpinned the surge in merchan

148、dise imports,widening the current account(CA)deficit in H1 2022.The CA deficit widened from 0.7 percent of GDP in H1 2021 to 6.1 percent of GDP in H1 2022.Merchandise imports surged 27.5 percent because of the domestic recovery and high commodity prices,while merchandise exports grew at a lower 7.9

149、percent amid saturating demand for consumer electronics in the US and anemic demand for export goods in China due to pandemic-related restrictions.6 The surge in imports was broad-based,although more than 70 percent of the increase can be attributed to mineral fuels,raw materials and intermediate go

150、ods.The goods trade deficit widened from 12.3 percent of GDP in H1 2021 to 17.6 percent of GDP in H1 2022(Figure 4).Growth in net service exports was anchored on the robust IT-BPO sector and the recovery of tourism in the first half of the year.Remittances,meanwhile,grew at a relatively soft 2.8 per

151、cent in H1 2022,although the amount that overseas Filipinos(OFs)sent home remained substantial at 8.2 percent of H1 GDP.Net financial inflows financed the CA deficit in H1 2022.The financial account reversed from a net outflow of 0.7 percent of GDP in H1 2021 to a net inflow of 3.6 percent of GDP in

152、 H1 2022.Net inflows from foreign direct investment(FDI)(1.4 percent of GDP)and other investment accounts(2.2 percent of GDP)exceeded the outflows in portfolio investments(0.2 percent of GDP).FDI inflows mainly consisted of foreign investments to sectors such as manufacturing,real estate,finance,and

153、 information and communications technologies,while other investments consisted of inflows related to loan repayments of non-residents to Philippine-based banks.The portfolio investments registered marginal net outflows,due to the BSP withdrawal of investments in foreign debt securities,and lower res

154、idents placements in foreign debt securities.Against the backdrop of aggressive monetary tightening abroad,the BSP-registered investments reported net outflows of US$556.7 million(0.6 percent of Q3 GDP)in Q3 2022,a 57.8 percent increase from the same period last year.The BOP deficit widened to 1.6 p

155、ercent of GDP in H1 2022 from 1.0 percent of GDP in the same period in 2021(Figure 5).The Philippine peso,along with other currencies in the region,depreciated substantially in the first ten months of 2022.The shortfall in the BOP,along with the rising interest rate differential and the general stre

156、ngthening of the US dollar,led to a 11.9 percent depreciation of the Philippine peso against the US dollar in the first ten months of 2022.Compared to regional peers,the Philippine peso was among the currencies that depreciated the most against the US dollar since the start of the year,although it h

157、as rebounded lately(Figure 6).In real effective terms,the peso depreciated by 1.5 percent in the first nine months of 2022 compared to the same period in 2021.The BSP has indicated that it does not intend to step in to defend the peso,and will only step in to tame excessive volatility.Gross internat

158、ional reserves dropped by 12.8 percent to US$94.0 billion in October 2022,enough to cover 7.5 months of imports,down from 10.1 months in the same period last year.6 World Bank,East Asia and Pacific Economic Update,7 Fourteen currencies are included in the Philippine real effective exchange rate bask

159、et:US dollar,euro,Japanese yen,Australian dollar,renminbi,Hong Kong dollar,Indonesian rupiah,Malaysian ringgit,Saudi Arabian riyal,South Korean won,Taiwanese dollar,Thailand baht,and UAE dirham.Photo by:aldarinhoPhilippines Economic Update December 20221 0ToCTable of ContentsExecutiveSummaryRecent E

160、conomic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4

161、 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookFigure 4.Strong merchandise imports have widened the trade deficit.Source:PSA.Figure 5.The current account deficit drove the BOP shortfall.Source:BSP.Figure 6.Regional currencies have depreciated against the US dollar.-20-Q1-

162、2019Q2-2019Q3-2019Q4-2019Q1-2020Q2-2020Q3-2020Q4-2020Q1-2021Q2-2021Q3-2021Q4-2021Q1-2022Q2-2022PercentForeign Goods Trade(Percent of GDP)Trade balanceExportsImports-8.0-6.0-4.0-2.00.02.04.06.0H1 2018H1 2019H1 2020H1 2021H1 2022Percent of GDP(Posittive:Inflow)Balance of Payments ComponentsCapital acc

163、ountFinancial accountNet unclassified items2/Current accountOverall BOP position85878991103Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22IndonesiaMalaysiaPhilippinesThailandVietnamSource:Haver Analytics.Note:The base is January 2022=100.Philippines Economic Update December 2

164、0221 1ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public

165、 Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookBox 1.Recent Global Developments Global demand has slowed amid the collapse in global investor confidence and tighter financing conditions(Figure 7).Global growth declined from 2.4 perce

166、nt(seasonally-adjusted annual rate)in Q1 2022 to 0.1 percent in Q2 2022.Global investor sentiment soured,as investors anticipated weaker demand,continued high inflation,and further monetary tightening by central banks.In the United States,interest rate hikes by the Federal Reserve dampened industria

167、l production growth,while manufacturing activity in Europe contracted due to higher gas prices.Demand in China remained subdued due to the governments zero COVID-19 policy,record droughts,and continued decline in real estate prices.Other EMDEs,including the Philippines,suffered from softer exports d

168、emand brought by weakening global demand.The slowdown in global demand likely continued into Q3,as evidenced by the dip in the global Purchasing Managers Index(PMI)composite index below 50 since August.Despite a rebound in tourism,global trade contracted due to weaker global economic activity.Global

169、 goods exports declined in Q3,as global PMI indices for new export orders for goods and services have remained negative since June.While supply chain disruptions due to the war in Ukraine and lockdowns in China have eased,as evidenced by shorter delivery times and lower shipping costs,the slowdown i

170、n global economic activity led to weaker demand for exports.The contraction in merchandise exports led to a surge in inventory levels and a plummeting backlog of orders.Nevertheless,many governments relaxed their COVID-19 restrictions,benefitting global tourism.International tourist arrivals increas

171、ed threefold during the first seven months of 2022,but the rebound in tourism remained highly uneven and arrivals remained well below 2019 levels due to a slowing global recovery(Figure 8).Global financing conditions tightened as central banks battled high inflation.Global financing conditions conti

172、nued to deteriorate,reflecting tighter monetary policies across the world and rising risk aversion.Monetary authorities hiked their interest rates to combat elevated inflation,led by the US Federal Reserve,which increased the key policy rate from near-zero in Q1 2022 to 3.75-4.0 percent as of Octobe

173、r 2022.Globally,the hawkish stance of the US Federal Reserve has fueled the strengthening US dollar,resulting in the depreciation of many countries currencies and pressuring policymakers around the world.In advanced economies,the tighter stance of central banks resulted in higher government bond yie

174、lds and lower equity prices.In EMDEs,policymakers followed suit and raised their interest rates to address currency depreciation,heightened inflation,and portfolio outflows.In a sign of higher risk aversion,cumulative JanuaryOctober debt and equity portfolio flows in EMDEs turned negative for only t

175、he second time since 2008.Moreover,financial stress worsened in the majority of EMDEs,with the cost of insurance against sovereign credit default rising by 30 bps in Q3.Photo by:hxdbzxyPhilippines Economic Update December 20221 2ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Econo

176、mic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for Agric

177、ultureOutlook&Risks2.1 Growth Outlook-100-90-80-70-60-50-40-30-20-100WorldEuropeAsia and the PacificAmericasAfricaMiddle EastPercentInternational Tourist Arrivals Relative to 2019 Levels2021Jan-July 2022Figure 7.Global economic activity has slowed amid deteriorating investor sentiment.Figure 8.Globa

178、l tourism has started to recover as countries relax pandemic restrictions.Source:United Nations World Tourism Organization.-50-40-30-20-5000708090100Jan 2020Apr 2020Jul 2020Oct 2020Jan 2021Apr 2021Jul 2021Oct 2021Jan 2022Apr 2022Jul 2022Oct 2022Global PMI composite outputSentix

179、 economic expectations index,rhsPhoto by:Denys KurbatovSource:Haver Analytics.Sources:World Bank Global Monthlies,and Global Economic Prospects June 2022.Philippines Economic Update December 20221 3ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.

180、3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth O

181、utlook1.3 Inflation and Monetary Policy:Tighter Stance amid High Inflation Inflation continued to rise due to a tighter domestic food supply and price pressure from elevated global commodity prices.The BSP has raised the policy rate by 300 bps since May to re-anchor inflation expectations,manage the

182、 peso depreciation,and prevent further second-round effects.Headline inflation accelerated in the first ten months of 2022 due to a tighter domestic food supply and elevated commodity prices.Headline inflation averaged 5.4 percent in the first ten months of 2022,higher than 4.0 percent in the same p

183、eriod in 2021(Figure 9).Food prices climbed since the start of the year due to a tighter domestic meat supply,weather disturbances,and shortages in select commodities.8 In addition,the war in Ukraine pushed global commodity prices to record highs earlier this year,exacerbating price pressures on dom

184、estic food and fuel items.9 Food inflation remained elevated in the first ten months of 2022(5.0 percent),while inflation related to housing,water,and electricity(6.3 percent)and transportation(13.1 percent)rose due to higher energy prices.In response,the government adopted targeted fuel grants,cash

185、 transfers and free bus fare in select routes to cushion the impact of elevated fuel prices.10 Excluding volatile food and energy items,core inflation rose at 3.4 percent in JanuaryOctober 2022,up from 3.1 percent in the same period last year.Core inflation has accelerated since March 2022,indicatin

186、g an increase in underlying price pressures and heightened inflation expectations in recent months.Compared to regional peers,domestic headline inflation rose faster than petroleum exporters like Indonesia(4.0 percent)and Malaysia(3.2 percent),and Vietnam(2.9 percent)which instituted fuel tax cuts a

187、nd price freeze for some services.The BSP has tightened its monetary policy amid high inflation(Figure 10).Between May and November 2022,it raised the key policy rate by 300 bps to 5.0 percent,and it has signaled further increases in response to the tighter monetary stance of the US Federal Reserve.

188、The BSP has reversed its earlier accommodative stance to combat the buildup of inflation expectations,peso depreciation,and the emergence of second-round effects in wage hikes,transport fare hikes,and higher suggested retail prices of several commodities.The continued rebound in economic activity br

189、ought by the reopening of the economy and improving labor market conditions in the first three quarters has also fueled demand-side price pressures.Consistent with the end of its accommodative stance,the BSP also reconfigured its government securities purchasing window from a crisis intervention mea

190、sure into a regular liquidity facility earlier this year.11 Regionally,the BSPs interest rate hikes are more aggressive than Indonesia(175 bps),Malaysia(100 bps),and Vietnam(200 bps).The asset quality and profitability of banks improved as the economic reopening boosted business conditions.The econo

191、mic reopening and the recovery of domestic demand likely boosted the cash flow of borrowers,improving their ability to service debt.As a result,the restructured loans to total loans ratio declined from 3.1 percent in September 2021 to 2.8 percent in September 2022.Moreover,the gross non-performing l

192、oan(NPL)ratio declined to 3.4 percent in September 2022,its lowest level since September 2020 but still higher than its pre-pandemic level of 2 percent(Figure 11).These developments increased the financial buffers 8 The African Swine Fever continued to affect domestic pork production,while higher gr

193、ain prices led to higher prices for feeds.Meanwhile,the Department of Agriculture cited lower domestic production as the reason for the shortage of salt and sugar.9 The country is a net importer of most staple foods,fertilizer,and fuel.The exchange rate pass-through to domestic prices has been signi

194、ficantly lower since the central banks adoption of inflation targeting.Latest estimates show that the average impact of a Php1 depreciation leads to a 0.08 ppt increase in quarter-on-quarter inflation during the inflation targeting period,compared with 0.35 ppt increase during the pre-inflation targ

195、eting period.See Bangko Sentral ng Pilipinas(2022),Monetary Policy Report,November,Available online:https:/www.bsp.gov.ph/SitePages/PriceStability/FullReportMPR/MonetaryPolicyReport_Full_November2022.aspx.10The government approved fuel subsidies worth Php2.5 billion for transport sector and Php0.5 b

196、illion for the agriculture sector.Meanwhile,to cope with higher cost of living,a Php500 monthly cash transfer program worth Php6.2 billion has also been approved for the poorest 50 percent of the population.In addition,the free bus fare in EDSA busway was extended until December 31,costing the gover

197、nment an additional Php1.4 billion.11 To support the government during the pandemic and ensure participation in the bonds market,the BSP implemented daily purchasing window for government securities in the secondary markets.In June 2022,the BSP has started to scale down these operations.The governme

198、nt securities purchasing window will be relaunched as a regular facility under the interest rate corridor framework.Philippines Economic Update December 20221 4ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy

199、 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookFigure 9.Inflation rose due to e

200、levated food and energy prices.Figure 10.The BSP tightened its monetary policy in response to elevated inflation.Source:BSP.Figure 11.The banking sector is showing signs of improvement,as the share of NPLs and restructured loans declined.Source:BSP.3.03.04.04.95.46.16.46.36.97.7(1)-1 2 3 4 5 6 7 8 9

201、JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSepOct20212022PercentContributions to inflationTransport:Fuels and lubricants for personal transportFood and non-alcoholic beveragesUtilities:Electricity,gas,and other fuelsAlcoholic beverages and tobaccoNon-food and non-energy itemsHeadlin

202、e inflationCore Inflation718012345Dec-19Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20Jan-21Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22PercentNon-Performing LoansRestructured Loans to To

203、tal Loan PortfolioCapital Adequacy Ratio-11357911Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-22Nov-22PercentCore InflationHeadline InflationFood&Non-alcoholic beverageNon-FoodBSP Key policy rateSource:BSP.of the banking sector,as the NPL coverage rat

204、io reached 100 percent in August 2022.Banking sector profitability indicators have also largely rebounded.In September 2022,the return on asset and return on equity ratios reached 1.4 and 11.5 percent,respectively,their highest levels since March 2020.Bank lending to the private sector expanded amid

205、 stronger domestic demand.Private credit grew by 10.1 percent in September 2022,up from 3.2 percent in the same period last year but still lower than the increase in borrowing reported in March 2020.The credit growth was driven by improving domestic activity amid the economic reopening,and it repres

206、ented a turnaround from the anemic private credit growth brought by pandemic restrictions and depressed business confidence recorded last year.The expansion of private credit also coincided with the BSPs tightening monetary stance,indicating robust credit demand despite higher interest rates.The mon

207、ey supply(M2)grew by 6.1 percent in September 2022,lower than the double-digit growth recorded during the BSPs policy support in the early days of the pandemic.Philippines Economic Update December 20221 5ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Se

208、ctor1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Gr

209、owth Outlook1.4 Fiscal Policy:Towards Consolidation The fiscal deficit narrowed in Q1-Q3 2022,although it remains higher than pre-pandemic levels.Revenue generation improved due to robust domestic demand and a windfall from customs collections.The public spending-to-GDP ratio fell due to lower-than-

210、target public spending and unwinding of pandemic support.National government debt continued to increase as the fiscal deficit remained elevated in Q1-Q3 2022.The increase in public revenues and the decline in public spending led to a narrower fiscal deficit from 8.3 percent of GDP in Q1-Q3 2021 to 6

211、.5 percent of GDP in Q1-Q3 2022(Figure 12).However,the fiscal deficit remained well above the pre-pandemic average of 2.7 percent of GDP,resulting in an increase in the national government debt ratio to 63.7 percent of GDP as of end-September 2022(Figure 13).While a portion of the debt mix relies on

212、 external funding,68.5 percent of outstanding debt is peso-denominated,and medium-and long-term debt accounts for 96.2 percent of the total debt portfolio,as of September 2022.Debt levels remain sustainable,but increasing financing costs,peso depreciation,and elevated fiscal deficits over the short-

213、term,present challenges to the fiscal consolidation agenda.The national government exceeded its revenue targets in the first three quarters of 2022 buoyed by the ongoing economic recovery.Public revenues increased by 0.8 ppt of GDP to 17.1 percent of GDP in Q1-Q3 2022 fueled by the increase in tax r

214、evenues,12 reflecting the acceleration of the economic recovery during the year.A strong demand for imports contributed to record high revenues for the Bureau of Customs(BOC),which exceeded its collection target by 17.8 percent through the first three quarters of 2022.In addition,customs revenues be

215、nefitted from higher excise tax collections(due to the peso depreciation and rising global commodity prices)and more stringent anti-smuggling measures.Meanwhile,tax revenues from the Bureau of Internal Revenue(BIR)grew by 12.3 percent in 2022,fueled by increased domestic activity and efforts to stre

216、ngthen digitalization and tax administration.Public spending growth has moderated,as the government has been unable to reach its programmed spending target while pandemic support has been reduced.National government spending declined from 24.6 percent of GDP in the first three quarters of 2021 to 23

217、.6 percent of GDP over the same period in 2022,as the government fell short of its expenditure program by nearly 2 percent.Spending on capital outlays declined by 0.3 ppts of GDP to 5.2 percent of GDP,falling short of the government program.Meanwhile,current expenditures declined by 0.7 percentage p

218、oints of GDP to 15.3 percent of GDP,as the government reduced maintenance spending and subsidies by 0.4 percent of GDP each.The reduction in current spending is in line with the governments efforts to unwind pandemic support amid the expected recovery and in taking steps towards fiscal consolidation

219、.Photo by:Lexter Yap12 Tax revenues increased by 0.5 ppt of GDP to reach 15.3 percent of GDP as of the third quarter of 2022,exceeding the target by 2.4 percent.Philippines Economic Update December 20221 6ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External S

220、ector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 G

221、rowth OutlookFigure 12.The fiscal deficit narrowed in H1 2022.Source:Department of Budget and Management(DBM);PSA.Figure 13.About two-third of the national debt is domestic debt.-10-9-8-7-6-5-4-3-2-530201920202021Q1-Q32021Q1-Q32022Percent of GDPRevenuesExpenditureFiscal Balance(RHS)0.01.0

222、2.03.04.05.06.07.00070200001920202021Q3 2022Percent of GDPPercent of GDPDomestic debtExternal debtNG Guaranteed debt(RHS)Source:DBM,PSA.Photo by:MDV EdwardsPhilippines Economic Update December 20221 7ToCTable of ContentsExecutiveSummaryRecent Economic&Poli

223、cy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action A

224、genda for AgricultureOutlook&Risks2.1 Growth Outlook1.5 Employment and Poverty:Labor Market Vulnerabilities amid the Economic Recovery Lower unemployment and increased labor force participation signal the return of workers in the labor market.However,the high share of informal and elementary occupat

225、ions underscores the vulnerabilities of the labor market recovery.The poverty rate in 2021 increased due to the impact of the pandemic.Even though a strong growth rebound may partially decrease poverty in 2022,continuing labor market weakness and rising food and fuel prices will make a sharper pover

226、ty reduction more challenging.The economic reopening has allowed more individuals to participate and find jobs.The LFPR rose to 65.2 percent in September 2022,above the pre-pandemic level of 61.7 percent in January 2020.The increase was evident despite uncertainties associated with the spread of COV

227、ID-19 variants and rising fuel and commodity prices.Entry into the labor market was driven by women,whose LFPR continued to rise despite wide fluctuations throughout the pandemic(Figure 14).Even with increasing labor force participation,the national unemployment rate has been on a steady decline,fal

228、ling from 8.9 percent in September 2021 to 5.0 percent in September 2022(Figure 15).Youth unemployment of 11.5 percent in September was the second lowest reported this year.The data indicate that the labor markets reopening has accommodated jobseekers,including new labor market entrants and young ad

229、ults,in various sectors.Underemployment,which was high and volatile during the pandemic,appears to be stabilizing on a largely downward trend in 2022.Net job creation accelerated in the last six months,led by the services and manufacturing sectors.Nearly 2.0 million jobs were added between April and

230、 September 2022,a significant increase from a net creation of 0.2 million jobs between November 2021 and April 2022.Most of the jobs created came from the services sector,with wholesale and retail trade,and transportation and storage adding about 1.2 million jobs.These are the same subsectors whose

231、outputs significantly expanded in the first three quarters of 2022,buoyed by higher household consumption.Similarly,the manufacturing sector added 0.8 million jobs given its sustained growth in the past six months.These increases came amid a slowdown in job generation in fishing and aquaculture.This

232、 may be attributed to the impact of rising fuel prices which compel fisherfolks to reduce fishing activities or find alternative livelihoods as nearly 80 percent of their earnings go to fuel alone.13The employment recovery is underlined by a labor market with a higher share of low-quality jobs than

233、before the pandemic.The share of elementary occupations associated with low pay remained high at around 28.9 percent of total employment in September 2022,almost 2 percentage points higher than the pre-pandemic level in January 2020.This is in line with the large number of jobs added in wholesale an

234、d retail trade,many of which are elementary occupations.The share of part-time workersthose working less than 40 hours a weekwas 34.2 percent in September 2022,higher than 31.6 percent in January 2020.Furthermore,the share of wage and salary workers and employers among the employed slipped to 62.2 p

235、ercent in September 2022,nearly 5 percentage points lower than before the pandemic(68 percentin January 2020).As a result,there has been an increase in the share of self-employed and non-paid workers,indicating growing informality in the labor market.13 J.Lagare,2022,Decline in Fish Output seen in 4

236、th Quarter,Philippine Daily Inquirer,October 19,Available online:https:/ Economic Update December 20221 8ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperit

237、y2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookFigure 14.Female labor force participation has increased in recent months Figure 15.whi

238、le the unemployment rate continues to fall.Source:PSA-Labor Force Survey(LFS)(various rounds).Note:Starting February 2021,the LFS is conducted monthly to produce more timely data.Data show a normalized LFPR(January 2020=1).0.80.911.11.2JanAprJulyOctJanAprJulyOctJanFebMarAprMayJunJulAugSepOctNovDecJa

239、nFebMarAprMayJunJulAugSep20022MALEFEMALE0510152025JanAprJulyOctJanAprJulyOctJanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSep20022Percent Unemployment RateUnderemployment RateExpon.(Unemployment Rate)Expon.(Underemployment Rate)The growth contraction in 2020 and t

240、he associated income loss among poor and vulner-able households led to an increase in poverty in 2021.The latest national poverty estimates show that the poverty incidence rose from 16.7 percent in 2018 to 18.1 percent in 2021(Figure 16).This translates to 19.9 million individuals living in poverty,

241、an increase by 2.3 million people.Over the same period,the poverty incidence in the economically important regions of the National Capital Region(NCR),Calabarzon,Central Visayas,and Central Luzon increased by 1.2,3.1,9.9,and 4.4 percentage points,respectively.14 Nevertheless,the poverty rate in the

242、Bangsamoro Autonomous Region in Muslim Mindanao(BARMM)the poorest region in the coun-trydecreased from 61.2 percent to 37.2 percent.15 Because of the increase in the household income of poor households in BARMM,the country-wide income-based Gini index dropped from 42.3 to 40.7 in 201821.Labor market

243、 vulnerabilities and rising food and fuel prices make it more challenging to drasti-cally reduce poverty.Results from the World Bank High Frequency Household Survey(HFS)in May 2022 show that 51 percent of respondents have the same level of income as they did prior to the pandem-ic,while 20 percent r

244、eported greater incomesa sig-nificant improvement from the previous round in May 2021.However,this recovery in household income faces multiple challenges.First,some segments of the labor market have not fully recovered,with wages and earnings still lagging behind the expansion of employment.Second,r

245、ising inflation can imperil the recovery of living standards among the poor,as food and energy/utilities account for about 70 percent of their household expenditures(Figure 17).16 The government has rolled out a few programs to cushion the impact of rising prices on household incomes,17 the largest

246、of which involved targeted cash transfers(announced in March 2022)to support around 12.4 million vulnerable households belonging to the bottom 50 percent of Filipino households.Other programs include fuel subsidies for public transport drivers,farmers,and fisherfolk.14 A poverty decomposition exerci

247、se shows that a deterioration of enterprise income and remittances contributed to an increase in the poverty incidence of these regions.15 The main drivers of the significant drop in the poverty incidence in BARMM were increases in wages(both from regular and seasonal work)and income from both farm

248、and non-farm enterprises.16 On average,the upper quintiles devote 27 percent of their spending towards housing,utilities,and fuels.These spending items are also exacerbated by imported inflation.17 The government has approved a total of 0.4 percent of GDP in fuel grants and transfers to help soften

249、the impact of the war in Ukraine on inflation(World Bank 2022).Philippines Economic Update December 20221 9ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosper

250、ity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook0070PhilippinesNCRCARIlocosCagayan ValleyCentral LuzonCALABARZONMIMAROPABi

251、colWestern VisayasCentral VisayasEastern VisayasZamboanga PeninsulaNorthern MindanaoDavao RegionSOCCSKSARGENCARAGABARMMPercent20182021Figure 16.Poverty incidence by Region,20182021 Source:PSA.Figure 17.Food and energy account for a high share of total expenditure among poor households.Source:FIES.Ph

252、oto by:Ezra Acayan0%10%20%30%40%50%60%70%80%FoodHousing,water,electricity,gas,and other fuelsPhilippines Economic Update December 20222 0ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employm

253、ent and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookPART 2OUTLOOK AND RISKSRobust domestic activ

254、ity is driving growth in 2022,but the deteriorating global environment is spilling into the economy and tempering its growth prospect.Slowing global growth is expected to soften goods exports with repercussion on manufacturing,while elevated domestic inflation and higher interest rates are expected

255、to slow private consumption and investment growth in 2023.The economy is projected to grow at an upward-revised 7.2 percent in 2022 before declining to 5.7 percent on average in 2023-25.The growth outlook is subject to external and domestic risks,where the authorities face the challenging task of su

256、pporting recovery while taming inflation amid a narrowing policy space.Sustained investments in health and education,and targeted social assistance will help protect the poor and vulnerable from the pandemic scarring and the adverse effects of high inflation.Photo by:View Apart Philippines Economic

257、Update December 20222 1ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effect

258、iveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook2.1 Growth OutlookUnfavorable developments in the global environment are spilling into the domestic economy and tempering the growth prospect in 2023.The external challe

259、nges come at a time of narrowing policy space with rising domestic interest rates and ongoing fiscal consolidation needs.The growth projection for 2022 is revised upward in light of stronger-than-expected Q3 performance.The economy is estimated to grow at 7.2 percent year-on-year in 2022,higher than

260、 the 6.5 percent growth projection published in the East Asia and Pacific Economic Update,October 2022.Third quarter growth of 7.6 percent exceeded consensus projection of 6.3 percent.18 Strong domestic demand is driving growth,which is more than compensating for the unfavorable global environment.T

261、he economic reopening this year is unleashing pent-up demand,contributing to jobs and incomes recovery,and benefitting the contact-intensive services sector.However,the weak external demand is tempering manufacturing growth,while low productivity and natural disaster are hampering agriculture.While

262、growth in the first three quarters of 2022 reached an average of 7.7 percent,the unfavorable external environment and its spillover to the domestic economy will likely slow the growth momentum in the fourth quarter and into 2023.The external environment has further deteriorated with the realization

263、of key downside risks,identified in the Philippines Economic Update,June 2022 edition.Global growth is expected to decelerate in 2022 and 2023,reflecting synchronous monetary tightening,worsening financial conditions,and continued disruptions due to the war in Ukraine(Box 2).The ensuing weaker globa

264、l demand is weighing on global industrial production and trade,which has decelerated since the start of the second half of 2022.Rapid monetary tightening specially in advanced economies has led to capital outflows and currency deprecations in EMDEs.These external challenges have channeled through th

265、e Philippines in the form of high inflation,peso depreciation,and capital market volatility.The economy is projected to grow slower at an average of 5.7 percent in 2023-25(Figure 18).The growth slowdown to 5.4 percent in 2023 is Figure 18.Growth is expected to be lower in 2023,dragged by the unfavor

266、able external environment.Source:PSA,World Bank staff estimates.-11.0-9.0-7.0-5.0-3.0-1.01.03.05.07.09.020002220232025PercentOctober 2022 projectionDecember 2022 projectionActual growth2024Forecast18 Based on poll by Reuters.See https:/ Economic Update December 20222 2ToCTable

267、of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Imp

268、lications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook19 Energy prices are projected to rise by 59.1 percent year-on-year in 2022 before contracting by 11.2 percent in 2023,while food prices are projected to rise by 17.9 percent in 2022 before contracting

269、 by 6.2 percent in 2023.See World Bank Commodity Markets Outlook,October 2022.premised on the fading of pent-up demand,alongside elevated inflation and higher interest rate environment that will temper domestic demand.The higher rates will lead to lower private credit and subdued investments at a cr

270、itical time when public investment growth is expected to slow in line with fiscal consolidation and a programmed decline of public infrastructure spending from 5.5 percent of GDP in 2022 to 5.0 percent in 2023-25.As global growth is expected to decelerate next year,external demand from advanced econ

271、omies,which are key buyers of Philippines merchandise exports,will be subdued.Medium-term growth will gradually approach its potential rate at 5.7 percent as the output gap closes in line with the cyclical recovery.Global commodity prices have eased,but inflation is expected to remain above target r

272、ange in 2022-2023 due to currency depreciations(Box 3).The global growth slowdown is weighing on commodity prices,with agriculture,energy,and metal prices easing from their earlier peaks this year(Figure 19).19 Nonetheless,prices in domestic-currency terms in many economies remain elevated because o

273、f currency depreciations including the Philippines which is a net food and energy importer.Together with price adjustments in public transport fares,regional minimum wages,and retail prices of grocery items,the economic rebound will add to demand-side price pressure,and likely sustain the rise in co

274、re inflation this year.Headline inflation is thus projected to reach 5.5 percent in 2022 and 4.3 percent in 2023,above the target range of 2.0-4.0 percent.Monetary policy in the Philippines will follow its mandate of price stability,and is expected to tighten to anchor inflation expectation and mana

275、ge inflation within the target range.The fiscal deficit is expected to decline in the medium term in line with the governments medium term fiscal program.The deficit is expected to decline from 7.1 percent in 2022 to 4.5 percent in 2025.The declining trajectory hinges on the economic recovery and fi

276、scal consolidation measures as reflected in the national government medium term fiscal program.The recovery is expected to lead to higher public revenue collection from taxes on consumption and trade,on top of government efforts to expand revenue collection through tax policy and administration meas

277、ures.The authorities are considering new taxes on single-use plastics and digital services,a new mining fiscal regime,reform on real property valuation,among others.Moreover,a byproduct from the peso depreciation is that customs collection will increase commensurate to the higher import valuation.Me

278、anwhile,the pace of public spending is expected to decelerate over the medium term,driven by an anticipated decline in recurrent operating expenditure from 17.0 percent of GDP in 2022 to 15.0 percent in 2025,and capital outlays from 5.8 percent to 5.1 percent,respectively.0204060800180200

279、Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19Jul-19Sep-19Nov-19Jan-20Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-222023f2024fUS$index,2010=100EnergyAgricultureMetalFigure 19.Global commodity price pressure is weakening.Source:World Bank.Phil

280、ippines Economic Update December 20222 3ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Intr

281、oduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookBox 2.Global Outlook and Risks Global growth forecasts have been downgraded markedly from the beginning of the year.Global GDP is expected to grow by 2.

282、9 percent in 2022,down by 1.2 ppts from the WB Global Economic Prospects January forecast.Higher borrowing costs amid a synchronized and rapid global response to rein in inflationary pressure has raised the specter of a global recession.The War in Ukraine and curtailment of energy supplies have crea

283、ted a challenging situation for Europe,with soaring energy prices.Moreover,COVID-19-related mobility restrictions in China will continue to put considerable strain on global supply chains in the near term.Oil importing countries are yet again facing rising prices following the decision of the Organi

284、zation of Petroleum Exporting Countries(OPEC)to reduce oil production in October.Growth is projected to remain subdued if commodity prices remain persistently high for the rest of 2022,causing central banks to trigger another round of monetary tightening.Significant downside risks threaten growth in

285、 2023(Table 1).Global growth is expected to be subdued in 2023 as consumers exhaust pent-up demand,inflation persists,and monetary tightening continues.Global inflation,however,is projected to gradually ease in 2023 as global growth slows down and supply chain bottlenecks gradually abate.It is,howev

286、er,more persistent than previously expected,and will remain above Central Bank targets for much of 2023.Tighter-than-expected monetary stances,should inflation prove to remain stubbornly high in 2023,will have a significant toll on consumer spending and business investment.Vulnerable EMDEs face the

287、prospect of further increasing sovereign spreads,especially against the US dollar.With already limited fiscal space and stretched national budgets,less accommodative borrowing conditions could leave them unable to pay larger import bills.Future energy and food shocks brought about by protracted geop

288、olitical conflicts and extreme weather events remain key downside risks in the foreseeable future.Global trade is expected to slow down due to anemic consumer demand,and is on course to recover at a substantially weaker pace compared to previous post-recession recoveries.Leading indicators,such as t

289、he S&P Global PMI Index,20 show contracting new exports orders since February 2022,primarily due to the slowdown of the global economy.Softening goods demand has eased supply chain bottlenecks,as measured in the Federal Reserve Bank of New Yorks Supply Chain Index,although it remains above the pre-p

290、andemic level.However,the prospect of further restrictions on mobility amid Chinas zero COVID-19 policies risks further strains in global supply chains should they materialize.A new wave of COVID-19 infections,however,could interrupt the recovery of tourism,prolonging the damage to small island econ

291、omies that are tourism-reliant.In the near term,as the US Federal Reserve raise policy rates to stem domestic inflation,the US dollar is projected to gain further strength against other currencies,resulting in more expensive imports that will widen current account deficits around the globe.Furthermo

292、re,higher import bills are likely to contribute substantially to domestic inflationary pressures across the globe and further soften demand for imported goods.Table 1.Economic Growth,20192023f.20022f2023fWorld2.6-3.45.72.93.0Advanced economies1.7-4.65.22.62.2EMDEs3.8-1.76.63.44.2East Asia

293、 and Pacific(EAP)5.81.27.23.24.6Philippines6.1-9.55.77.25.4 Source:World Bank Global Economic Prospects June 2022,World Bank Global Monthly September 2022,World Bank East Asia and the Pacific Economic Update October 2022.Note:World,AE,and EMDE forecasts for 2022 and 2023 were published in the June 2

294、022 edition of the Global Economic Prospects.Forecasts for EAP and the Philippines were published in the October 2022 edition of the East Asia and the Pacific Economic Update.New projections by the Global Economic Prospects are expected to come out by January 2023 at www.worldbank.org/gep.20 The S&P

295、 Global Purchasing Managers Index(PMI)integrates survey responses by manufacturing executives.The survey includes questions on a compa-nys business output,new orders,and supplier performance,among others.Philippines Economic Update December 20222 4ToCTable of ContentsExecutiveSummaryRecent Economic&

296、Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Acti

297、on Agenda for AgricultureOutlook&Risks2.1 Growth OutlookWeak external demand and tighter financial conditions may drag activities in the services and industry sectors.The high-inflation,high-interest rate environment may moderate domestic demand,manifesting as weaker household consumption and capita

298、l investment growth.In turn,the lower demand may hamper activities on services sector including wholesale and retail trade,food and accommodation,transportation and storage.Nonetheless,sub-sectors such as the IT-BPO and tourism may continue to see strong growth with sustained demand for BPO services

299、 exports and travel industry recovery in the Asia-Pacific in 2023.21.High interest rates may temper private borrowings and demand for new construction projects,although the authorities remain committed to its public infrastructure investment agenda.Meanwhile,weak external demand will temper manufact

300、uring growth especially as electronics carves a lions share of the countrys merchandise exports.Growth in the agriculture sector remains tepid due to chronic underinvestment and vulnerability to weather-related shocks(Table 2).The subdued external environment is expected to weaken the net exports.Af

301、ter rebounding to 5.7 percent in 2021,global growth is expected to soften to 2.9 percent in 2022 and 3.0 percent in 2023.Growth in advanced economies is projected to decelerate by 1.2 percentage points this year,and impact the countrys goods exports since nearly 70 percent are destined for high-inco

302、me economies.Still,the prospect for services exports remains strong with IT-BPO sector and international tourism.Meanwhile,import growth will likely remain elevated as the government implements infrastructure projects,leading to sustained demand for capital goods.The current account deficit is proje

303、cted to widen to 4.9 percent of GDP this year,and remain in deficits of about 3.9 percent in 2023-24.Private consumption growth is expected to decelerate as pent-up demand fades and high inflation and interest rates discourage borrowings.Pent-up demand is likely to fade as discretionary spending dwi

304、ndles into 2023,following the big household consumption rebound this year.These will result in lower consumption growth in 2023,exacerbated by higher inflation and interest rates which may discourage private borrowings and lead to postponed household investments.Still,consumption will be supported b

305、y sustained remittance inflows and improving labor market conditions,which will contribute to jobs and income generation.While the consumer confidence level remains negative,its trajectory has been improving since the pandemic,signifying fewer households holding pessimistic views on the economy.The

306、prompt decrease in consumer confidence in response to rising prices in Q3 2022 suggests,however,that prolonged elevated inflation will further dampen consumer confidence(Figure 20).Capital formation will be a key growth driver in the medium term as the government attracts private investments and pur

307、sues its public infrastructure agenda.The government has conveyed its commitment to the infrastructure investment agenda amid its pursuit of fiscal consolidation.Public infrastructure disbursements are programmed to decline from 5.5 percent of GDP in 2022 to 5.0 percent of GDP in 2023-2025.To cover

308、for this decline,the administration targets to better attract foreign and private investments to the Philippines.It has amended the Public Service Act and the Foreign Investment Act,and passed the Retail Trade Liberalization law,allowing full foreign ownership for more industries,lowering minimum pa

309、id-up capital requirement for foreign retail enterprises,and liberalizing for more industries the practice of professions not governed by existing special laws.Likewise,the amendment of the implementing rules and regulations for the Build-Operate-Transfer law signals government intent to make Public

310、 Private Partnerships more attractive to the private sector.21 World Travel and Tourism Council,2022.Travel and Tourism Economic Impact 2022,August,available online:https:/wttc.org/Portals/0/Docu-ments/Reports/2022/EIR2022-Global%20Trends.pdf.Philippines Economic Update December 20222 5ToCTable of C

311、ontentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implica

312、tions for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookTable 2.Economic Indicators for the Baseline Projections.202020212022e2023f2024f2025fReal GDP growth,at constant market prices-9.55.77.25.45.95.9 Private Consumption-5.83.16.04.14.44.4 Government Consumpti

313、on1.31.11.31.31.21.1 Capital Formation-9.13.93.61.62.83.4 Exports,Goods and Services-4.72.21.91.22.33.0 Imports,Goods and Services -8.74.55.72.94.86.0Real GDP growth,at constat factor prices-9.55.77.25.45.95.9 Agriculture0.00.00.10.10.10.1 Industry-4.02.41.71.31.61.8 Services-5.53.35.54.04.23.9Infla

314、tion(period average)2.43.95.54.23.93.5National government balance(%of GDP)-7.6-8.6-7.1-5.8-5.0-4.5Current account balance 3.2-1.8-4.9-4.3-3.5-3.0Source:PSA;Bureau of Treasury(BTr),World Bank staff estimates.Note:Growth subcomponents show contributions to growth.Figure 20.Consumer confidence dropped

315、in the previous quarter with household concerns over rising prices.Source:BSP.-60-40-200204060Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3200022Overall Consumer Confidence Index(Current quarter)Overall Business Confidence Index(Current quarter)Photo by:Jed RegalaPhili

316、ppines Economic Update December 20222 6ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Intro

317、duction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth OutlookBox 3.Trends on Global Commodity Prices and Implications for the Philippines A sharp global growth slowdown and concerns about an impending global recess

318、ion are weighing on commodity prices.Indeed,the price indexes for most energy products,non-energy commodities and precious metals are expected to decline by up to 15.2 percent over the next year or so.However,in many economies,prices including commodity prices in domestic-currency terms remain eleva

319、ted because of currency depreciations.This could deepen the food and energy crises already underway in a number of countries.As the global growth slowdown intensifies,commodity prices are expected to ease in the next two years,but they will remain considerably above their average over the past five

320、years.Energy prices are expected to fall by over 10 percent in 2023 and 2024.Brent prices are forecast to average US$92/bbl in 2023,down from a projected US$100/bbl in 2022,before easing to US$80/bbl in 2024.Oil prices have declined as growth has slowed down and Russias oil production was more resil

321、ient than expected.However,there are significant risks from the supply side,particularly related to the availability of energy supplies in Europe during the upcoming winter.Natural gas prices in Europe rose sharply amid restocking,from US$29.2/mmbtu in May 2022 to US$70/mmbtu in August 2022,although

322、 they have declined to US$39 in October 2022.Coal prices have soared from US$157/mt in November 2021 to US$431/mt in September 2022,followed by a modest decline to US$390 in October 2022,putting climate objectives at risk.Agriculture and metal prices are projected to decline 5 and 15 percent,respect

323、ively,in 2023 before stabilizing in 2024.Metal prices have fallen sharply,largely due to the significant slowdown in Chinas property market.Agricultural prices have also eased,with food commodity prices declining as Ukraines exports restarted over the summer(Figure 7).Nevertheless,at 21.2 percent,fo

324、od price inflation remains high globally,but it is significantly lower in East Asia and Pacific at 6.1 percent.22 While Philippines has been hard hit in recent months by the elevated global commodity prices and the peso depreciation,the country stands to benefit from the expected decline in commodit

325、y prices.Indeed,elevated global commodity prices and the peso depreciation contributed to the rising food and energy price pressure,as well as imported inflation due to higher cost of imports in the Philippines.As average global crude oil prices peaked at US$112 per barrel,the elevated costs directl

326、y passed through to consumer fuel prices,which immediately affected transport and utilities components in the CPI basket.The peso depreciated significantly from an average of Php/US$51.2 in January 2022 to an average of Php/US$57.4 in September 2022,effectively raising the cost of imported goods.On

327、the other hand,given that much of the recent increase in inflation in the Philippines is caused partly by imported inflation driven by the recent spike in global commodity prices the next two years should see an easing in the inflationary pressures due to the expected considerable decline in global

328、commodity prices.Moreover,BSPs stance on inflation targeting has been reaffirmed in recent months and the central bank rose its benchmark interest rate multiple times in 2022 as a way to bring demand-driven inflation under control.Last,but not least,the depreciation of the peso is likely to be mitig

329、ated by the expected increase in remittances towards the end of the year.22 Based on World Bank Food Price Index.Philippines Economic Update December 20222 7ToCTable of ContentsExecutiveSummaryRecent Economic&Policy Dev1.1 Economic Growth1.2 External Sector1.3 Inflation&Monetary 1.4 Fiscal Policy 1.

330、5 Employment and Poverty2.2 Poverty&Shared Prosperity2.3 Risks&Policy ChallengesEnsuring Food Security for all3.1Introduction3.2Effectiveness of Public Spending3.3Implications for financial&Func Dev3.4 An Action Agenda for AgricultureOutlook&Risks2.1 Growth Outlook2.2 Poverty and Shared ProsperityTh

331、e economic reopening will likely have a positive effect on household incomes as conditions for workers and businesses improve,but new challenges mainly on high inflation and effects of natural disasters threatens poverty reduction.The further easing of mobility restrictions and full reopening of the

332、 economy will help sustain the recovery of businesses and labor market to boost household incomes.The resumption of economic activities particularly in sectors severely affected by the pandemic will see more Filipinos employed and household incomes continuing to recover.As the economy is projected t

333、o maintain its growth momentum and some labor market indicators recover,poverty reduction is likely to follow suit.Using the World Banks poverty line for lower-middle income countries of US$3.65-a-day(2017 Purchasing Power Parity(PPP),poverty incidence is projected to decrease from 19.5 percent in 2021 to 16.8 percent in 2022 and will continue to decline through 2024(Figure 21).High inflation brou