Analysts see Philippine growth accelerating in the second semester

Paolo Luis G. Montecillo and Jhoanna Frances S. Valdez
BusinessWorld
http://www.bworldonline.com/BW090409/content.php?id=051

ECONOMIC GROWTH will likely accelerate in the remaining months of the year as domestic demand continues to strengthen on the back of benign inflation and steady growth in remittances, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in their joint publication, Market Call, which they released late last Wednesday.

This optimism was shared by the Congressional Planning and Budget Department (CPBD), the think tank of the House of Representatives which released its September report yesterday that showed revised, higher growth projections for the year.

FMIC and UA&P said growth in gross domestic product (GDP) will likely hit 2.5% and 4.5% in the third and fourth quarters of the year, respectively.

"Most recent economic indicators are blinking more positively, giving an impression that the ’green shoots’ noticed earlier are beginning to sprout...We remain more optimistic for GDP growth in the second half of the year," the August issue of Market Call read.

While the report was prepared before the government released the second quarter data last Aug. 27, Market Call author Victor A. Abola, economist of UA&P, said in a phone interview yesterday that they were keeping their projections.

For his part, CPBD Director-General Rodolfo V. Vicerra said his group has raised its full-year GDP growth projection to 1.1%-1.9% from the earlier 0.6%-1.8% estimate.

"With the Philippine economy narrowly escaping a technical recession [in the first half], CPBD simulations indicate a slightly more sanguine economic outlook for 2009, with full-year GDP growth reckoned to range between 1.1%-1.9%. This is an upward revision from the CPBD’s projection last May, ranging from 0.6%-1.8%," his report read.

"Our outlook is a bit more optimistic than the official target range of 0.8%-1.8% adopted by the Development Budget Coordinating Council in June [but which is expected to be raised in a meeting next week.]"

CPBD revised its projections across all sectors: services are now expected to grow by a faster 2.4%-3% from an earlier 1.5%-2.6% projection; the industry sector to post a smaller contraction of -0.2% to -1.1% from an earlier forecast of -0.4% to -1.9%; as well as agriculture, fishery and forestry sector to grow by a slower 1.6%-2.2% from an earlier 2.7%-3.6% estimate due to the impact of an emerging El Niño condition in the Pacific.

Official data released last Aug. 27 showed the country posting GDP growth of 1.5% in the second quarter of the year, topping most forecasts for the period. This was also faster than the 0.6% year-on-year growth notched in the first quarter.

Aside from low inflation and growth from remittances from overseas Filipino workers (OFW), Market Call said a recovery in exports towards the end of the year will also help boost GDP growth.

The decline in exports decelerated for the second month in a row in June to 24.7% from the 26.9% drop posted in May.

"This is supportive of the view that economies of major markets around the globe are slowly recovering," Market Call said.

CPBD now expects merchandise exports to decline by 13.6%-16.7%, better than its earlier projection of -14.5% to -19.4%, even as demand for the country’s top exports — semiconductors and garments — remain weak amid a slow global recovery.

The government forecasts a contraction in exports ranging from -13% to -15% this year, but officials earlier this week said the actual result may turn out to be worse, given the weaker-than-expected recovery among the country’s major trading partners.

"[But] June marks the second consecutive month of contraction at a slower rate. In the following months, we can expect further improvement in exports as inventories are beginning to be built up in our export markets for the coming holiday season," Market Call said.

Likewise, remittances from overseas Filipino workers (OFWs) are expected to sustain their strong performance for the rest of the year, bucking earlier forecasts of a decline. OFW remittances, which made up about a tenth of GDP last year, grew 2.9% in the first half of the year.

"The [first half] figures of OFW remittances support our expectation...that it will post a flat to even positive growth this year. It also is supportive of economic growth for the country in the first half, given its significance to domestic consumption," Market Call said.

The Bangko Sentral ng Pilipinas expects remittances to just match last year’s level of $16.4 billion.

UA&P’s Mr. Abola said that although remittances have grown by single-digit rates so far this year, the benefits are amplified because of the peso’s depreciation. He said a weaker currency compared to last year means more pesos ending up in remittance recipient’s hands. In real peso terms, he said remittances grew 11.9% as of June.

Meanwhile, FMIC, the investment arm of the country’s second largest bank Metrobank, said inflation will likely stay subdued this year, indicating stability in consumer prices. The firm’s report said oil and food prices, which drove inflation to a record high last year, will remain stable this year on the back of continuing tempered demand.

Price and earnings, Manila style

John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/home/opinion/15507-price-and-earnings-manila-style.html

Banking group UBS publishes its “Price and Earnings” report every three years.

What the “P&E” report gives is a comparison of the cost of living among 73 cities around the world.

The survey examines the cost of many items and services as a factor of how much a local worker must toil in order to afford those items. Not surprisingly, Oslo, Zurich, Copenhagen, Geneva and Tokyo are the most “expensive” cities on the planet. Mumbai, Delhi, Manila, Kuala Lumpur and Cairo are the world’s “cheapest.”

When the study began in 1971, the purpose was to bring some order and comparison in light of the collapse of the world’s currency-rate exchange. When currencies were backed by gold, there was little price differentiation, and you could anticipate exactly how much something would cost regardless of the city you were standing in. As the exchange rate of a dollar to an ounce of gold was fixed, the exchange rate between currencies, too, was fixed.

A hand-tailored suit in the 1900s cost about one ounce of gold, no matter where you bought it—in New York or London. An ounce of gold and one suit cost $20. Approximately, four British pounds Sterling bought that same gold ounce. So to a tailor in New York or London, it did not matter whether you paid in dollars or pounds; he could still exchange the paper money for a standard amount of gold.

By 1971, when the “P&E” report began, all that change. There was no single standard commodity like gold to measure costs between locations. Over time, they developed the “Big Mac Index.”

McDonald’s Big Mac sandwich was one of the few things that did not change from place to place. The size and ingredients were virtually the same everyplace, sort of like an ounce of gold.

Therefore, “cost” or “price” could be measured by how long a man in Manila or New York or Moscow had to labor to be able to purchase the almighty Big Mac as opposed to purchasing an ounce of gold.

In one sense, a Big Mac is “cheap” in Manila as it costs much less in dollar terms than in Zurich.

However, that bit of information is of little use, unless you are interested in traveling the world in search of the least-expensive fast-food item to pay for with your dollars. The more important fact is how long a local individual would have to work to purchase that Big Mac in his local currency.

If you are an average employee in Tokyo, you need to work only 12 minutes at your job to enjoy a Big Mac for lunch. In London only one minute more of labor gets you that same sandwich. Pity the poor Indonesian, though, who must clock in for 136 minutes, or the laborer in Mexico City, who has to stay on the job for two hours for his Big Mac. Here in Manila, it takes 88 minutes of work to buy a Big Mac.

Yet, it is not all that bad here in the Philippines. When comparing a basket of 122 goods and services, that “basket” costs $2,969 in New York, in Zurich $3,219 and $2,401 in Hong Kong, but only $1,166 in Manila. Of course in Mumbai, the basket costs only $916.

Food prices are less expensive in Manila. The same groceries that would cost you $526 in Los Angeles costs $251 here. And clothes prices in the Philippines are among the lowest in the world. A complete ladies’ outfit, consisting of suit, blazer/jacket, summer dress, pantyhose and a pair of shoes, goes for $120 here versus $250 even in Jakarta and a whopping $860 in Athens. That’s probably because we are closer to China than Greece is.

But we all know why prices are “cheap” in Manila; wages are so low in comparison. “Average gross hourly wages [before taxes and social-security contributions] can purchase the most in Copenhagen, Zurich and Geneva, followed by Los Angeles, Sydney and Miami. Bringing up the rear are Jakarta, Manila, Mumbai and Nairobi, where average gross hourly wages have been between 11 percent and 15 percent of the purchasing power of a salary in Zurich.” And the worst statistic is yet to come.

The Big Mac index is being over taken by the “iPod Index.” An iPod nano (with 8 GB of storage) costs only 10 hours of labor in Miami or Sydney. While in Manila you must work about 128 hours to buy it. Of course, that is better than in Mumbai, where 177 hours of work can buy the iPod.

While it might be fun, even intellectually stimulating to look at all this data, in truth, it is a bunch of nonsense. For the price of a Big Mac in Manila, you could feed yourself very well with healthy food for a whole day. Trading the price of a Big Mac in New York would not buy you a day’s worth of real food.

And that iPod? You and I both know where we can get an “iPod” for “one-five only” and we are assured that it has the same components inside as a “real” iPod. It probably does, too.



PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

Northrail projects civil works near completion

http://www.gov.ph/index.php?option=com_content&task=view&id=2001557&Itemid=2

Civil works on the Northrail project is expected to be completed as early as this month in time for its much anticipated opening next year.

One of the flagship projects of President Gloria Macapagal-Arroyo, the NorthRail project is envisioned to provide an efficient transport system between Metro Manila and Central and Northern Luzon and provide solution to the traffic problem and help decongest the metropolis.

The initial phase of the Northrail Project entails the reconstruction and upgrading of the rail line from the existing Caloocan Station to the Diosdado Macapagal International Airport (DMIA) in a bid to develop the Clark Special Economic Zone (CSEZ) as the foremost transshipment logistics hub in the Asia-Pacific region.

Phase I of the project is the dual-track rail service from Caloocan to Malolos, Bulacan under Section 1. Section 2 completes the rail service from Malolos to the DMIA.

The railway project from Caloocan to Malolos will interconnect and improve access to major transportation facilities in the Manila-Clark-Subic economic triangle, particularly Fort Bonifacio, Clark SEZ, Subic SEZ, and Poro Point in La Union.


The North Rail project Section I will have stations in Caloocan, Valenzuela, Marilao, Bocaue, Guiguinto, and Malolos.

So far, some 20,000 families residing within the rail line's right of way have already been relocated by the National Housing Authority (NHA).

Last April, the President approved the P645-million supplemental loan for Phase 1 of the NorthRail-SouthRail linkage project that will provide an efficient transport service and encourage urban development in other areas in Central, Northern, and Southern Luzon.

Phase 1 of the project covers the rehabilitation of the 34-kilometer rail section from Caloocan to Alabang, and the track renewal from Caloocan to España.

Last July, the President also launched the new trains of the newly-revitalized Philippine National Railways (PNR) by riding the new train from Tutuban to Buendia, which is expected to stretch up to the Bicol region by next year.

The NorthRail-SouthRail projects are among the flagship infrastructure projects enumerated by the President in her State-of-the-Nation Adress (SONA), particularly for the five super regions of the country that were programmed to catapult the country into First World status by 2020.

The Northrail project from Malolos to Clark is pegged at P39.3 billion; the Southrail project linking Metro Manila, Calamba and up to Bicol is estimated at P48.5 billion.

The President's major SONA projects are expected to enhance the country's economic growth and create jobs and leave behind a legacy of sustained development, prosperity and progress for generations to come.

Through the President's effective tax reforms, the government
has improved revenue efforts to generate about P6.5 trillion over the medium term to help fund these vital projects.

From 2004 to 2007, public infrastructure spending increased from P37.4 billion to P117.3 billion, an unprecedented figure reflecting the administration's seriousness to enhance the country's global competitiveness. (PND)

Philtrust Bank’s first-half profit up 40%

Erik de la Cruz
Business Mirror
http://www.businessmirror.com.ph/home/banking-a-finance/15347-philtrust-banks-first-half-profit-up-40.html

PHILIPPINE Trust Co., also known as Philtrust Bank, posted a 40-percent jump in net income for the first half of 2009 largely due to its high-yielding placements with the Bangko Sentral ng Pilipinas (BSP) and investments in government securities.

The bank of newspaper publisher and hotel owner Emilio Yap posted a six-month net income of P587.5 million compared with last year’s P419.7 million.

Net income for the second quarter rose 58 percent to P346.3 million from P219.7 million last year.

While maintaining its conservative policy, the bank said it continued to grow rapidly, with total resources increasing to P77.15 billion as of end-June from P71.46 billion at the end of 2008.

The bank attributed the growth to a 31.83-percent, P5.562-billion increase in “due” from the BSP, arising from what it described as a “more effective management” of reserve deposits and from higher fixed-term deposits placed in the central bank’s special deposit accounts (SDA).

Banks have reported huge gains from interest income from their placements with the SDA, a monetary liquidity-management tool that allows the BSP to mop up excess liquidity in the system in order to keep inflation manageable. “The bank’s higher asset base and correspondingly more efficient utilization of capital generated improved earnings compared to the same period last year,” Philtrust said in notes accompanying its results.

The bank’s interest income for the first half grew 21 percent to P2.6 billion from P2.15 billion last year.

The bank said it had also been aggressive in trading bonds and other securities, resulting in a 63-percent increase in gains from available-for-sale securities and a 31-percent increase in interest on held-to-maturity securities.

Service charges and other operating income surged by 139.7 percent due to higher volume of government bonds and other securities sold or redeemed.

These gains offset the 50-percent decrease in income from foreign-exchange trading, it said.

Interest expense increased by 22.5 percent due to higher level of deposits compared with last year’s level.

The bank’s deposit base expanded 9.5 percent to a record P66.15 billion as of end-June from last year’s level of P60.4 billion.

Its capital-adequacy ratio, which measures capital strength against risk-weighted assets, stood at 33.11 percent as of end-June, well above the minimum regulatory requirement of 10 percent.

Yap was previously looking to expand his banking business by acquiring Philippine Bank of Communications (PBCom) from its Filipino-Chinese owners.

In May, however, Philtrust announced it was no longer interested in acquiring PBCom, which recorded a return on equity of negative 18.9 percent as of end-June.

A controlling interest of 67 percent in PBCom is supposed to be sold to a new investor this year in accordance with the financial-assistance agreement signed in 2004 by the Nubla, Luy and Chung families—the bank’s three major shareholders—with the Philippine Deposit Insurance Corp.

Philtrust ranked 16th-biggest in terms of assets among the country’s 38 regular and expanded commercial banks.

The good news keeps coming

John Mangun
Outside the Box
Business Mirror
http://www.businessmirror.com.ph/home/opinion/15378-the-good-news-keeps-coming.html

The newspaper headlines have finally caught up with all the gloom and doom coming from the economic experts, primarily with University of the Philippines on their résumés. Read this: “GDP growth for second quarter contracts 3.9 pct,” “GDP shrank 3.5 percent in the second quarter from a year earlier,” and “GDP in the second quarter contracted 4.9 percent from a year earlier.”

Sorry, my mistake. Those are the headlines, respectively, from Malaysia, Singapore and Thailand. The Philippines headlines read, “On an annual basis [year to year], second-quarter GDP climbed 1.5 percent.” In fact, the Philippines’ “second-quarter gross domestic product growth at a seasonally adjusted 2.4 percent from the first quarter was the highest since 2.4 percent in the first three months of 2007, and beat market estimates” (Reuters). Actually it only beat the “market estimates” of the “experts.” The confidence factor of local businesses and prices on the Philippine Stock Exchange have been predicting a good second quarter for the last three months. It is only the “experts” that are surprised that the Philippines is doing comparatively so well in the face of a global recession/depression.

The reason is simple; the Philippine economy does not depend on the United States.

The Japanese just concluded a dramatic election that potentially will change the course of that nation. The ruling Liberal Democrats, which have held power for 55 years, were handed a landslide defeat at the hands of the Democratic Party of Japan (DPJ). What is critically significant is that the DPJ ran on a platform moving the economy toward less dependence on the US.

Those countries, which include almost every one in Asia, that depend on the US for their wealth-building are looking for any bright spot, real or imagined. Most of the bright spots are imaginary.

Asian exporters saw their numbers decrease, but not as bad as in the first quarter. That is like saying the cancer is still growing but at a slower pace. Dependence on the US is still a terminal disease.

The US is headed for even more economic trouble over the next six months both from internal and external factors.

We know that both China and Japan have financed their exports to the USA by loaning money to purchase their goods. Two things are changing. The first is that neither country is interested in becoming the “casino financier” for the US anymore. Second, if these economies are determined as they appear to be to shift away from dependence on US exports, there is no reason to loan any more money. The day of reckoning is soon coming to the US and will hit around November. If the US cannot sell the massive quantities of debt paper that they normally do to China and Japan, then the only alternative is a very large devaluation of the US dollar. The result will be a sudden and greater downturn in Asian exports.

Domestically, unemployment continues to increase. The Obama administration is counting on the US consumer to bail out the economy. But increasing unemployment decreases consumer spending even more, causing more companies to fire workers, creating more unemployment and a larger decrease in consumer spending. The only solution to break this vicious cycle is increased government spending. But the government is out of money, probably cannot borrow in the quantities it needs, and the economy will sink even further.

The Philippines’ only significant “dependence” on the Western economies is through overseas Filipino remittances. We have seen that despite the global economic downturn, remittances have not been damaged. Further, the government’s decision to keep the peso at an artificially low rate has given those remittances a boost in purchasing power here at home. Whether it will make economic sense to keep the peso weak remains to been seen over the remainder of 2009, but for now, it is working well.

The Philippine Stock Exchange (PSE) may be the most visible barometer of the future economic condition of the Philippines. And here, the picture could not be much brighter. As long as we keep seeing commentaries in the press about the potential for a large decline in stock prices, all is well.

Although the PSE index has risen from the February 2009 low of around 1,800 to the current 2,800, the best is yet to come for individual issues. From my latest Market Update: “We are just about ready for the indictor line to break above the ‘zero’ mark. This is critical and very important. This last time the Monthly Buy Signal moved above ‘Zero’ was in January 2004, and once that Buy signal broke ‘Zero’, the PSEi went from 1,500 to 3,500, more than doubling. You are part of the greatest PSEi price rally since the one that began in 1990 after the ’89 coup attempt, and that over the next eight years then, prices nearly quadrupled.”

In other words, the last six months have merely been the opening act for what is yet to happen. A comment in one of yesterday’s newspapers about prices on the PSE being expensive is wrong. What stock prices are telling us now is that over the rest of this year and into 2010, corporate profits will catch up with stock prices, even as prices go still higher, anticipating even higher future profit growth.

Unlike most of the other global stock markets, Philippine investors are buying the hard-earning generating assets of listed companies, not merely dreams about a better future. Investors in the PSE are forecasting a bright economic future, putting their money where their optimism is. They will be well rewarded betting on the Philippines.



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