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National Economic and Development Authority

September 25, 2009

From a slower GDP growth of 3.8 percent in 2008, the Philippine economy is expected to
decelerate further in 2009 due to the impact of the global crisis. However, while the growth in
the first half of 2009 was at 1.0 percent, growth for the full year is expected to be between 1.0
and 2.0 percent as the slump in global economic conditions is starting to ease. Gross national
product is expected to register 3.2-4.2 percent growth due to a possible 21.5-22.6 percent
growth in net factor income from abroad (NFIA)

Supply Side

The agriculture sector is seen to grow by 1.6-2.2 percent. In the first semester of 2009, the
sector grew only by 1.3 percent due to subdued production in rice and the contraction in corn
and sugar. In the second half, the sector is expected to benefit from declining fertilizer prices
and continued support from the government. However, some risk is expected with the onset
of the El Niño drought, which is seen to hit the country in the latter part of the year.

Meanwhile, the industry sector is forecast to contract by 1.5 percent or at most register flat
growth. This is mainly due to the manufacturing subsector, which is adversely affected by
weak external and domestic demand. The contraction in the manufacturing subsector will be
slightly offset by robust growth in construction, attributed mainly to strong government
spending on infrastructure as part of the fiscal stimulus program. Another significant source
of growth is mining and quarrying, which is projected to increase due to the upward trend in
metal prices in the world market. The utilities subsector is expected to post slower growth
due to the decline in economic activity.

The services sector will continue to lead growth in 2009, albeit at a slower pace of 2.4-3.2
percent. Growth in the sector will be primarily attributed to trade which will gain from the
improvement in the general economic outlook, the higher level of consumer confidence, the
continued growth in migrant Filipino remittances, and easing inflation in the second half. The
transportation, communications and storage subsector will also provide a push, especially
from air transport and communications. The air transportation industry will continue to attract
more travelers, especially domestic, on offers of cheaper cost of transportation, while
communications will benefit from more innovations due to stiff competition. Another source
of growth is private services, primarily due to personal services and tourism, especially
healthcare/medical tourism. Business process outsourcing (BPO) is expected to maintain high
growth since demand for BPO services remains strong. The government services subsector is
seen to grow strongly with the continued implementation of the fiscal stimulus program and
election-related spending.

Demand Side

With the improvement in consumer confidence and lower inflation, growth in personal
consumption expenditures is expected to improve in the second half, resulting in a 1.8-2.7
percent growth rate for the full year. The expectations-defying growth in remittances and the
start of election-related spending in the latter part of the year, will also boost private

consumption. Government consumption is seen to remain strong with the continued
implementation of measures to stimulate the economy and government spending in
preparation for the 2010 elections.

Gross domestic capital formation will contract by 4.5 to 2.7 percent mainly because of lower
investments in durable equipment and weak private construction. The adverse effects of
pessimism and uncertainties on private investment will offset the expected strong growth in
public construction.

Prospects for merchandise exports and imports are still negative due to the global economic
slump. Exports of services, however, are projected to perform well due to outsourcing.

Outlook for 2010 to 2013

GDP is expected to grow by 2.7-3.7 in 2010, 3.8-4.7 percent in 2011, 4.8-5.7 percent in 2012
and 5.8-6.7 percent in 2013, while GNP is seen to range between 5.1-6.0 percent in 2010,
6.4-7.3 percent in 2011, 5.8-6.6 percent in 2012 and 6.5-7.4 percent in 2013.

A gradual recovery is projected for 2010. This outlook banks on appropriate, effective, and
timely implementation of fiscal and monetary stimulus packages in the country. That is,
government will not end the stimulus efforts anytime soon, as it awaits firm signs of a broad-
based and sustainable upturn. Then will it address the negative side effects of expansionary
fiscal and monetary policies. This growth also needs the support from the private sector, and
the sustained recovery in advanced economies and other major trading partners.

A full economic rebound is expected in 2011, leading to continually strong high growth in
2012-2013. The Philippines will start reaping the gains from previous measures to improve
competitiveness: infrastructure development; improved governance, bureaucracy, and
transparency; streamlined processes and less costly transactions in doing business; cheaper
power and logistics costs; minimized political noise; and improved peace and order.

Agriculture will grow faster due to lower fertilizer costs, increased government funds to
support the sector, and adaptation measures to climate change. Growth will also be boosted
as the country ventures into the global halal markets.

Industry is seen to rebound with the recovery of the manufacturing subsector, due to
continued improvements in the global and local economies, the pick-up in international trade,
and the expected better performance of agriculture attributed to opportunities in the halal
industry. Improved competitiveness is expected to result in a more productive and efficient
manufacturing subsector. Mining and quarrying is a key growth area, with the country among
the top 10 mineral producers in the world. Expectations of higher growth for the medium
term will likely lead to an increase in utilities production. Construction will likely slow down
on the public sector side, as the government successfully accomplishes its infrastructure
development program.

Services will continue to drive growth due to greater economic activities, continually strong
inflows of migrant remittances, and greater business and consumer confidence. Finance will
accelerate as the stock market recovers, as financial services continue to improve, and as the
capital market develops. Transportation, communications and storage will benefit from the
pick-up in international trade, strong tourism, more innovations in communications, the

deregulation of the air transport industry, and air transport agreements that open up new
routes. Growth of private services will be enhanced by the robust growth in the offshoring
and outsourcing industry and higher momentum in tourism. The wholesale and retail trade
sector expects brighter prospects as the general economic outlook improves and consumer
spending picks up. A moderate improvement in the growth of ownership of dwellings and
real estate is seen for 2010 after its boom in the previous years. This is expected to gain
momentum in the medium term due to business expansion and still high housing demand.
The government services subsector is seen to surge in 2010 with the holding of the national
elections and the expansion of government programs on social protection and poverty

In 2010, private consumption expenditure is expected to hold fairly well with lesser consumer
fears, the spending effects of the election, and increased levels of migrant remittances.
Government consumption will likewise increase with the planned expansion of the hunger
mitigation projects and the conditional cash transfer program, as well as government
spending for the elections. But this will slow down in the succeeding years as part of the
government’s effort to keep the budget deficit from ballooning.

Recovery in investments is expected to kick-in by 2010 as investor confidence improves in an

environment of low inflation and interest rates and relatively stable exchange rates. However,
the primary downside are the uncertainties brought by the election as capital accumulation
tends to decline prior to and after the polls. Capitalizing on the projected gradual recovery of
the export and manufacturing sector, investments in capital goods is seen to increase.
Investments in renewable energy are expected to surge, specifically wind, bio-energy and
hydropower. The office property sector is projected to post moderate growth in the near term,
as outsourcing firms remain conservative about their expansion plans. (However, this could
be compensated by demand for low-cost housing, supported by favorable housing interest
rates, easing prices of construction materials, and the foreseen rebound of the migrant family
market.) In 2010, the government budget will prioritize the completion of on-going and
nearly completed construction and will not favor new construction. The government will
continue the emphasis on infrastructure but it will shift to large-scale projects, tapping
resources from official development assistance and encouraging joint ventures and public-
private partnerships.

Exports are expected to recover in 2010 with higher demand for semiconductors. A boost in
exports is also seen from other products like agricultural goods, as the country actively
pursues diversification of its market and product portfolio.

Philippine Economic Growth, 2008-2013
(In percent)

Actual Forecasts
2008 2009 2010 2011 2012 2013
GNP 6.2 3.2-4.2 5.1-6.0 6.4-7.3 5.8-6.6 6.5-7.4
GDP 3.8 1.0-2.0 2.7-3.7 3.8-4.7 4.8-5.7 5.8-6.7
Agriculture 3.2 1.6-2.2 2.1-3.1 2.9-3.9 3.1-4.1 3.5-4.5
Industry 5.0 -1.5-0.0 2.8-3.7 3.5-4.4 4.2-5.2 5.6-6.6
Services 3.3 2.4-3.2 2.9-3.9 4.3-5.2 5.7-6.6 6.6-7.5
Private 4.7 1.8-2.7 3.8-4.5 4.4-5.1 4.6-5.3 4.9-5.6

Government 3.2 5.3-6.1 1.2-1.7 1.1-1.6 2.6-3.1 2.1-2.7

Investments 1.7 -4.5 to -2.7 4.1-4.8 3.8-4.7 3.9-4.7 7.6-8.5
Exports -1.9 -12.4 to -11.4 4.4-5.4 7.1-8.1 8.6-9.6 9.4-10.4
Imports 2.4 -12.4 to -11.4 8.2-9.2 8.9-9.9 8.2-9.2 8.2-9.2