Philippine Constructors Association, Inc.

3/F Padilla Bldg., Francisco Ortigas Jr. Avenue,

Ortigas Center, Pasig City
Philippines 1605
Telefax: (632) 631-2788
Email: secretariat@philconstruct.com

PHILIPPINE COUNTRY REPORT

Fourth Quarter | 2014

Philippine Economy: Better fourth

quarter but slower 2014 growth

I
t has been a rollercoaster ride for the Philippine economy in 2014. Gross domestic
product (GDP) recorded lower growth rates in first and third quarters while bouncing
back both in second and fourth quarters of 2014. At the end of 2014, GDP growth rate
was at 6.1% lower than the 7.2% GDP growth rate recorded in 2013.

The 2014 Philippine GDP appeared to be anti-climactic as the global economy showed
signs of solid recovery this year. As a result of faster growth in private consumption,
government spending, investment and exports, US economy will likely grow by 2.4% in
2014 given the advance estimate of 2.6% fourth quarter (Q4) GDP growth rate (Bureau
of Economic Analysis, US Department of Commerce). The 2.4% GDP growth rate of US
in 2014 is higher than the 2.2% growth rate in 2013. Other economic giants such as
China and India have also posted modest GDP growth rates. Driven by strong factory
production, retail sales and investments, China has sustained its GDP growth rate of
7.3% in Q4 2014 resulting to a full-year growth of 7.4%, which is slightly lower than the
7.7% growth posted in 2013.

Even the political tensions in Middle East and Ukraine-Russia did not seem to pose a
major threat in the global economy and worlds oil prices towards the end of 2014.

As such, the slower Philippine GDP growth rate in 2014 was a result of weak domestic
factors, especially government spending and agriculture production. Positive but slower
growth rates in private spending, Service and Industry sectors have all also pulled down
GDP in 2014.

The good news is that the economy can start 2015 on a brighter side given the strong
momentum in Q4 2014. The growth in economy will be driven mainly by strong
performance of exports (as the result of improving global economy), expected higher
government spending and sustained growth in manufacturing and construction sectors.

The economy bounced back in Q4 2014 with a GDP growth rate of 6.9% due to positive
growth rates on agriculture and construction spending, double-digit export growth rate
and faster growth rate in Service Sector. This brings the full-year GDP for 2014 at 6.1%,
about 1% lower than 2013 GDP growth rate of 7.2%. The 2014 figure was also the
lowest since 2012.

Figure 1: Philippine Quarterly GDP Growth Rates, Year-on-Year

2014 GDP = 6.1%

10-year average: 5.4%

Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

After a decline of 2.7% in Q3, Agriculture, Hunting, Forestry and Fishing (AHFF) has
recovered in Q4 2014 with a growth rate of 4.8%, which was significantly higher than the
growth of 0.9% in Q4 2013. The Q4 2014 figure was also the best for AHFF in 2014 and
the highest since Q4 2012. This resulted to a full-year 2014 growth of 1.9% for AHFF, an
improvement from last years 1.1%. Higher growth rates in Palay, Corn, Poultry, Banana
and Agricultural Activities and Services has brought back AHFF in the positive territory in
Q4 2014.

The Industry Group performed better with a 9.2% growth rate in Q4 2014 despite a
decline in Mining and Quarrying (M&Q). The other three sectors more than offset the
lackluster performance of M&Q. The Manufacturing was stable at 7.3% and Electricity,
Gas and Water Supply (EGWS) recorded a growth rate of 6.3%. The star of Industry
Group, however, was the Construction Sector with a staggering growth rate of 20.5% in
Q4 2014, which is a complete reversal of its negative growth rate (-5.2%) in the same
quarter a year ago. This is also the biggest expansion for Construction Sector since the
recorded 31.1% in Q1 2013. (More discussions on Construction Sector in the next
section.)

It was not a memorable year for private consumption (Table 1: Household Final
Consumption Expenditure) as it experienced a four consecutive decline in 2014. From
5.9% in Q1, private consumption went down to 5.1% in Q4 2014. Despite higher growth
rates for Health, Alcohol, Beverages and Tobacco and Recreation and Culture, overall
domestic private spending was pulled down by slower growth rates for Miscellaneous

2
Goods and Services and Communication Expenses. This led to a full-year 2014 growth
rate of 5.4%, slightly lower than the 5.7% posted last year.

Likewise, it was a miserable year for government spending. From a minor rebound in Q1
2014 at 1.9%, government spending had a stagnant growth rate of 0% in Q2 2014
before further breaching the negative territory in Q3 at -2.6%. On a full year basis,
government spending has slowed significantly from 7.7% in 2013 to 1.8% in 2014.
Nonetheless, the recovery of Public Construction in Q4 2014 was remarkable. The Q4
2014 figure was mainly due to higher cash disbursement for salaries and wages and
maintenance and other operating expenses (MOOE).

Exports, on the other hand, did very well in 2014. It was consistent in posting double-
digit growth rates this year with the highest in Q4 at 15.5% indicating a relatively healthy
global economy in 2014. This resulted to a full-year 2014 growth rate of 12.1%, which is
a complete reversal of -1.1% growth in 2013. Both Exports of Goods and Exports of
Services have accelerated in Q4 2014 compared to the previous year. For Goods, top-
performing products including semiconductors, control instrumentation and coconut oil.
Insurance, Government Services, Miscellaneous, Travel and Transportation, on the
other hand, were the leading services being exported.

Gross National Income (GNI) had also rebounded at 6.3% due to faster growth rate in
Net Primary Income (NPI) from the Rest of the World at 2.8%.

Table 1: GDP and its components, YOY growth rates (2000 Prices)

Sector 2013 2014

Q1 Q2 Q3 Q4 Full- Q1 Q2 Q3 Q4 Full-
year year
EXPENDITURE TYPE
Household Final 5.5% 5.1% 6.2% 5.9% 5.7% 5.9% 5.7% 5.2% 5.1% 5.4%
Consumption
Expenditure
Government Final 10.0% 12.1% 7.0% -0.4% 7.7% 1.9% 0.0% -2.6% 9.8% 1.8%
Consumption
Expenditure
Capital Formation 49.8% 33.6% 21.6% 22.4% 29.9% 9.5% -1.0% 3.6% -4.9% 1.1%
Exports -10.6% -7.7% 12.4% 3.2% -1.1% 13.5% 10.5% 9.8% 15.5% 12.1%
Imports 2.8% -4.6% 17.3% 6.4% 5.4% 10.1% 3.1% 5.8% 5.3% 5.8%
INDUSTRY ORIGIN
Agriculture, 3.2% -0.2% 0.3% 0.9% 1.1% 0.9% 3.4% -2.7% 4.8% 1.9%
Hunting, Fishing
and Forestry
Industry 11.3% 10.5% 7.7% 7.6% 9.3% 5.3% 7.9% 7.6% 9.2% 7.5%
Mining & 2.1% 0.3% 5.0% -2.5% 1.2% 9.0% 2.1% 7.8% -3.2% 3.5%
Quarrying
Manufacturing 9.5% 10.3% 8.9% 12.0% 10.3% 6.9% 10.9% 7.2% 7.3% 8.1%
Construction 31.1% 16.6% 3.4% -5.2% 9.6% 0.2% 1.2% 11.9% 20.5% 3.2%
Electricity, Gas 0.6% 7.0% 8.4% 3.0% 4.9% 1.0% 2.8% 3.3% 6.3% 3.2%
and Water Supply
Service 6.5% 7.8% 7.7% 6.7% 7.2% 6.8% 6.1% 5.4% 6.0% 6.0%
Gross Domestic 7.7% 7.9% 7.0% 6.3% 7.2% 5.6% 6.4% 5.3% 6.9% 6.1%
Product
Gross National 7.3% 6.4% 9.0% 7.2% 7.5% 7.2% 7.5% 4.8% 6.3% 6.3%
Income

Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

3
I
nflation rate showed an upward trend during the first half but it eventually tapered
towards the end 2014. Interest rate, as measured by 91-day Treasury-bill (T-bill) rate,
has been relatively low and stable amid two instances of policy rate increase by the
Central Bank of the Philippines (Bangko Sentral ng Pilipinas or BSP). The peso, on
the other hand, has been depreciating mainly because of strong US dollar, which is
further due to healthy recover in the US economy.

Figure 2: Key Macroeconomic Rates, Monthly Growth Rates, Year-on-Year

Source: Bangko Sentral ng Pilipinas

After a brief uptick during Q2 and Q3 2014 due to temporary increase in food prices and
logistical problems brought about by truck ban in/from Manila ports, inflation rate has
slowed down once again towards the end of the year. After peaking at 4.9% in July,
inflation rate fell at 2.7% in December 2014 leading to 4.1% inflation in 2014, slightly
higher than the 3.0% in 2013. Nevertheless, the 2014 inflation rate is still within the
BSPs target of 3% to 5%. Lower prices for food and energy products and lower
electricity rates have offset the initial uptick in the inflation rate.

Initially, we observed a minimal increase in 91-day T-bill rate reflecting the two policy
rates initiated by BSP. In July, BSP increased both its overnight borrowing rate or
Revere Repurchase (RRR) and its overnight lending rate or Repurchase (RO) by 0.25%
to 3.75% and 5.75% respectively. Another 0.25% increase was initiated by BSP to push
its RRR to 4.0% and RO to 6.0%. Both decisions were done mainly to minimize
inflationary pressures that took place during first half 2014.

As inflation rate no longer poses a major threat at the moment, BSP has maintained its
policy rates at 4.0% for overnight borrowing rate and 6.0% for overnight lending rate
after two separate Monetary Board meetings held last October and December 2014.

Peso continues to weaken against the US dollar mainly because of solid recovery in US
economy as a result of quantitative easing by US Fed in October 2014 (Development

4
Budget Coordination Committee Mid-Year Report 2014). In the last quarter of 2014,
peso had already depreciated by 2.8% against the US dollar compared to the same
period a year ago. For full year 2014, the peso has decreased its value by 4.7% against
the US dollar from Php/$42.4 in 2013 to Php/$44.4 in 2014. Fortunately, sustained
inflow of remittances, robust BPO earnings and credit upgrades have somewhat
restrained upward pressures of US dollar to peso.

Construction Industry: Finding ways to

keep the growth momentum

T
he performance of Construction Sector in 2014 is the exact opposite of what
happened in 2013. In 2013, the Sector started the year with a bang by posting a
growth rate of 31.1% in Q1 before showing a downward trend in the succeeding
quarters and even breached the negative mark (-5.2%) in Q4. The Sector still ended
2013 with a positive growth rate of 9.6%. On the other hand, the Construction Sector
started 2014 with practically no growth at all (0.2%) before ending the year strong with a
20.5% growth rate in Q4 2014. Overall, the construction sector posted a positive growth
at 8.5% despite of its slow pace during the first two quarters of the year.

Table 2: Share of Construction to GDP

At Constant Prices (2000)

Q4 2013 Q4 2014 Growth 2013 2014 Growth

Rate Rate

Construction
2,280 2,675 20.5% 9,001 9,330 8.5%
(in USD million)

Share to GDP (%) 5.5% 6.2% 5.6% 5.8%

At Current Prices

Q4 2013 Q4 2014 Growth 2013 2014 Growth

Rate Rate

Construction
4,165 5,068 25.0% 17,045 18,336 12.6%
(in USD million)

Share to GDP (%) 5.6% 6.3% 6.3% 6.4%

Notes: Q42013 Php43.6/$; Q42014 Php44.8/$; 2013 Php42.4/$; 2014 Php44.4/$
Growth rates are based on Peso values
Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

2014 has been a remarkable year for Construction Sector despite the underspending of
the government that was consistently observed throughout the year. There was also an
increased proportion of construction expenditure in the GDP from 5.5% in Q4 2013 to
6.2% in Q4 2014 and on a full-year basis: 5.6% in 2013 to 5.8% in 2014. This shows that
Construction Sector has again outperformed GDP growth in 2014.

5
 Table 3: Gross Value of Construction Industry Q3 vs. Q4 2014

At Current Prices (USD million) At Constant Prices (USD million)

INDUSTRY GROUP
Q4 2013 Q4 2014 Growth Rate Q4 2013 Q4 2014 Growth Rate

Public 1,440 1,507 7.6% 645 660 5.1%

Private 5,172 7,394 29.6% 2,910 3,559 25.7%

Gross Value in
Construction 7,300 8,901 25.3% 3,555 4,219 21.9%

Gross Value Added in

Construction 4,165 5,068 25.0% 2,280 2,675 20.5%

Notes: Q42013 Php43.6/$; Q42014 Php44.8/$; 2013 Php42.4/$; 2014 Php44.4/$

Growth rates are based on Peso values
Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

Table 4: Gross Value of Construction, 2013 vs. 2014

At Current Prices (USD million) At Constant Prices (USD million)

INDUSTRY GROUP
2013 2014 Growth Rate 2013 2014 Growth Rate

Public 6,505 6,276 1.0% 2,806 2,639 -1.5%

Private 23,064 25,613 16.3% 10,957 11,816 12.9%

Gross Value in
Construction 29,569 31,889 12.9% 3,655 14,455 10.0%

Gross Value Added in

Construction 17,045 18,336 12.6% 2,345 9,330 8.5%

Notes: 2013 Php42.4/$; 2014 Php44.4/$

Growth rates are based on Peso values
Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

The 20.5% growth rate in Q4, the highest growth in 2014, by Construction Sector was
mainly attributed to the robust performance of Private Construction and the turnaround
of Public Construction to 5.1% growth during the period.

Since its dismal performance in Q1 2014 (-6.0% growth) that dragged down the whole
sector, Private Construction has been steadily growing at double-digit levels (12.8%,
15.7%, and 25.7% from Q2 to Q4 in 2014).

Based on the latest available report by the Philippine Statistics Authority (PSA), the total
value of construction projects during Q3 2014 has reached a considerable growth of
97% from last year. Obviously, Q4 2014 figures will even surpass this growth once the
relevant statistics will be published officially in the coming weeks. The value of

6
residential buildings, which accounted for bulk of approved building permits (i.e. 70%),
rose by 19.9% in Q3 2014 despite the 5.7% contraction in the number of projects
recorded in the same period. Likewise, the value of non-residential construction projects
(agricultural, institutional, commercial, and industrial buildings) grew massively at
197.9% in the same quarter.

Table 5: Total Value of Construction Projects

Number (000) Value

(in USD million)
Type of Private Q3 2014 Q3 2013 Growth Q3 2014 Q3 2013 Growth
Construction Projects Rate Rate

Residential 20.60 21.84 -5.7% 1,010 844 19.9%

Non-Residential 3.83 3.26 17.5% 2,020 680 197.9%
Additions, Alterations, and Repairs 5.18 4.04 28.2% 182 110 65.9%

Total 29.62 29.15 1.6% 3,213 1,634 97.0%

Notes: Q3 2013 Php43.7/$; Q3 2014 Php43.8/$
Growth rates are based on Peso values
Source: National Statistical Coordination Board (NSCB)/ Philippine Statistics Authority (PSA)

Moreover, the same report revealed that among the countrys regions, NCR which is
ranking third in the number of construction projects has consistently remained highest
in terms of the value of construction at USD2.17 Billion representing 68.3% of the total.
CALABARZON ranked a far second with construction value of USD0.3 Billion (10.3%).
Central Visayas and Central Luzon with construction value of USD0.2 billion (5.1%) and
USD0.1billion (3.4%) placed third and fourth, respectively. Western Visayas ranked fifth
with construction value of USD0.09 billion (2.9%).

It is expected that in the next coming quarters or years, there will be a sustained
increase in residential construction projects in a bid to revive the countrys housing
market and meet demand from the growing population. To support this goal, the
Housing and Land Use Regulatory Board (HLURB) has set a target to construct 1 million
housing units by 2016, and also announced the construction of over 300 condominium
projects in Metro Manila, most of which will be allocated to the mid-market segment.
Meanwhile, residential sales will become stronger among the high-end market and
foreigners, as they are more prone to leasing and renting property.

It is important to note, however, that Public Construction went down by 6.2% in Q3 2014
mainly due to underspending of the Aquino Administration. Delays and/or suspension of
government infrastructure projects due to several factors such as Supreme Courts
decision declaring that major provisions of Disbursement Acceleration Program (DAP)
are illegal and the slow progress in the construction/rehabilitation efforts for Yolanda-
struck areas have pulled down the performance of Public Construction in Q2 and Q3
2014:

Implementation of infrastructure projects funded by DAP such as rehabilitation of

LRT 1 and 2, irrigation projects, FMRs and other projects has been halted due to
the unfavorable Supreme Court decision. Around USD1,625 million has been
initially proposed for DAP projects and these may now be delayed until legal
issues surrounding DAP have been resolved.

7
 Slow progress has also been observed on implementation of Yolanda-related
projects. As of Q3 2014, only 5% of 1,982-classroom target in 2014 has been
completed. In terms of classroom rehabilitation, only 13% out of 6,597-classroom
target in 2014 has been completed. Delays have been also attributed to coming
up with a more calamity resilient structural designs for these classrooms.

In terms of roads, only 22% of national road projects have been completed, 8.6%
for national bridges, 25% of seaports and 70% of airports in Yolanda-afflicted
areas based on data from Office for the Presidential Assistant for Rehabilitation
and Recovery (OPARR) as of Q3 2014.

Other reasons for the decline in Public Construction include the following:

Lower-than-expected claims from retirement gratuity and terminal leave benefits,

low obligation rates of government agencies, and lower spending on
infrastructure and capital outlays were the major reasons for lower-than-
programmed government spending. The table below highlights the comparison
of Program vs. Actual expenditures of the government during the first half 2014
as reported by the DBCC last September 2014.

In particular, DPWH has underspent by about USD675.8 million during the first
half 2014, which the agencies attributed to: 1) delayed pre-construction activities
due to program modification and realignments; 2) non-collection by some
contractors of their 15.0% mobilization cost and/or preference of contractors to
claim only upon completion of the project rather than issue progress billings; 3)
right-of-way problems; and 4) failure biddings (DBCC Mid-Year Report 2014).

Other big ticket infrastructure projects that are delayed include: Tulay ng Pangulo
Para Sa Kaunlarang Pang-Agraryo (USD47.3 million), DepEds Basic Education
Facilities (USD675.8 million), Farm-to-Market Roads (FMRs) (USD270.3 million)
and other irrigation projects (USD189.2 million). For FMRs and irrigation projects,
funds are not yet released due to late submission of FMR Network Plan with geo-
tagged information on the roads and irrigation as required by GAA 2014.

Overall, Public Construction had the not reached the positive mark for full year 2014 due
to these delays. Nonetheless, given the better revenue collection by the government in
the recent months (in fact, it even posted a surplus of USD153.7 million in November
2014), this means that there a large fiscal space to increase infrastructure spending for
the next coming quarters.

Table 6: National Government Disbursements by Expense Class, Program vs. Actual

Particulars January-June Deviation

(USD million)

Program Actual Amount Change

CURRENT OPERATING EXPENDITURES 20,856 18,090 (2,766) -13.3%

Personal Services 7,317 6,580 (737) -10.1%

8
 Maintenance and Other Operating Exp. 4,294 3,425 (867) -20.2%

Subsidy 1,926 1,112 (811) -42.2%

Allotment to LGUs 3,070 3,070 - 0.0%

Interest Payments 3,843 3,589 (254) 6.6%

Tax Expenditure 407 312 (94) -23.3%

CAPITAL OUTLAYS 5,389 3,962 (1,427) -26.5%

Infrastructure/Other Capital Outlays 4,389 3,070 (1,319) -30.0%

Equity 47 9 (36) -79.2%

Capital Transfers to LGUs 906 881 (27) -2.9%

CARP - Land Acquisition and Credit 47 - (47) 100.0%

NET LENDING 247 146 (101) 41.2%

GRAND TOTAL 26,492 22,196 (4,294) 16.2%

Notes: January-June 2014: Php44.5/$
Growth rates are based on Peso Value
Source: Department of Budget and Management

Construction Industry Key Indicators

Overall, the increase in wholesale prices of construction materials had slowed down in
Q4 2014. From 2.1% in Q3 2014, it slowed down to 0.8% in Q4 2014. The price of fuels
and lubricants had deflated further from -0.3% in Q3 to -8.9% in Q4 2014 as a result of
global downward pressure in fuel prices. The increase in prices of cement (from 3.4% in
Q3 to 2.9% in Q4 2014) and tile works (from 4.2% in Q3 to 2.9% in Q4 2014) have also
decelerated. On a full-year basis, the wholesale prices of construction materials had
only escalated by 1.9% in 2014, which is practically the same inflation rate posted in
2013.

Table 7: Construction Wholesale Price Indices in Metro Manila

Commodity Group Fourth Quarter Full-year

2013 2014 change 2013 2014 change
All items 223.5 225.2 0.8% 221.6 225.8 1.9%
Sand and Gravel 203.4 213.1 4.8% 202.3 211.0 4.3%
Concrete Products 205.9 210.6 2.3% 204.0 208.9 2.4%
Cement 192.9 198.5 2.9% 190.2 197.0 3.6%
Hardware 215.8 220.5 2.2% 214.1 219.1 2.3%
Plywood 181.3 188.8 4.1% 180.5 185.4 2.7%
Lumber 232.2 246.3 6.1% 230.0 241.7 5.1%
G.I. Sheet 184.3 190.6 3.4% 182.3 189.5 3.9%
Reinforcing Steel 252.7 254.1 0.6% 251.4 253.3 0.8%
Structural Steel 281.9 285.8 1.4% 281.1 284.4 1.2%
Tile works 182.3 187.5 2.9% 179.8 187.0 4.0%
Glass and Glass Products 179.7 185.2 3.1% 179.5 183.4 2.2%
Doors, Jambs, and Steel 202.5 205.3 1.4% 200.7 204.2 1.7%

9
Casement
Electrical Works 199.7 207.5 3.9% 197.8 204.1 3.2%
Plumbing Fixtures & 161.7 173.5 7.3% 160.0 169.7
6.1%
Accessories/Waterworks
Painting Works 204.3 207.4 1.5% 203.8 206.3 1.2%
PVC Pipes 177.6 181.0 1.9% 175.0 180.3 3.0%
Fuels and Lubricants 336.6 306.7 -8.9% 333.3 329.9 -1.0%
Asphalt 464.0 464.0 0.0% 464.0 464.0 0.0%
Machinery and Equipment Rental 114.6 114.6 0.0% 114.6 114.6 0.0%
Source: National Statistics Office / Philippine Statistics Authority

The construction industry remains the second major employer under the Industry Group
with a total of 2.55 million employees as of October 2014, an increase of about 250,000
jobs compared to same period a year ago. This also increased the share of construction
industry to total employment in the economy from 6.0% in October 2013 to 6.6% in
October 2014.

Table 8: Employment in Construction Industry

Sector 2012 Share to Total 2013 Share to Total 2014 Share to Total
Employment (Oct) Employment (Oct) Employment

Agriculture 12,093 32.2% 12,148 31.5% 11,947 30.8%

Industry 5,743 15.3% 5,779 15.0% 6,048 15.6%

Mining & Quarrying 250 0.7% 222 0.6% 225 0.6%

Manufacturing 3,112 8.3% 3,079 8.0% 3,133 8.1%

Electricity, Gas &

Water 148 0.4% 155 0.4% 134 0.3%

Construction 2,232 5.9% 2,304 6.0% 2,556 6.6%

Services 19,764 52.6% 20,559 53.3% 20,884 53.8%

Total 37,600 100.0% 38,537 100.0% 38,839 100.0%

Source: Bureau of Labor and Employment Statistics, Department of Labor and Employment

The construction industry showed improvement on its average daily basic pay with
Php323.03 in 2014, a slight increase of 1.9% from 2013.

Table 9: Average Daily Basic Pay among Industry Group

Industry Group 2012 2013 2014 Growth

Rate

Mining and Quarrying 7.51 7.11 6.41 -10%

Manufacturing 7.82 8.10 7.82 -3%

Electricity, Gas, Steam and Air-conditioning Supply 15.96 14.36 14.97 4%

Water Supply, Sewerage, Waste Management 10.27 10.06 10.07 0%

10
 Construction 7.36 7.51 7.26 -3%
Source: Bureau of Labor and Employment Statistics, Department of Labor and Employment

Outlook: Brighter times ahead

As expected, the domestic economy recorded another rebound with a 6.9% growth rate
in Q4 pushing the 2014 GDP growth rate at 6.1%. This is below the lower-end GDP
target (i.e. 6.5%) of the government, which is rather expected given lower private and
government spending and agricultural output.

Table 10: Summary of Philippine GDP Projections

Agencies 2015 2016 2017

Philippine Government 7.0-8.0% 7.5-8.5% 7.0-8.0%
Asian Development Bank (ADB) 6.4%
International Monetary Fund (IMF) 6.3% 6.0% 6.0%
World Bank (WB) 6.5% 6.5% 6.3%
Source: Respective agencys website

For 2015, we believe that 7% GDP growth rate is more realistic for the Philippines. This
expectation heavily depends on government spending particularly for major
infrastructure projects especially that the government is targeting to hit the international
benchmark of 5% of GDP for infrastructure investments by 2016. Since 2016 is another
elections year and Philippine will host the ASEAN 2015 meetings, we expect more
infrastructure projects to be rolled out particularly towards the end of 2015. We also
expect acceleration from the government side in relation to construction/rehabilitation
efforts in Yolanda-affected areas amid pressures from various groups.

We expect an uptick in government spending in 2015 due to the following:

DBM has announced that 78% (USD45.89 billion) of the total budget under GAA
for 2015 has been released already to jumpstart procurement and
implementation.

Budget of DPWH has increased from USD4.94 billion in 2014 to USD6.75 billion
in 2015. Likewise, budget of DOTC has jumped from USD1.10 billion in 2014 to
USD1.33 billion in 2015. With these two government agencies having bigger
budget in 2015, we can expect more infrastructure projects to be implemented in
2015.

By 2015, the government expects infrastructure investment to reach 4% of the

GDP and by 2016 it will reach the standard infrastructure spending to GDP ratio
of 5% at USD18.7 billion1.

DepEd to complete construction of additional 331 classrooms and rehabilitation

of 10,738 classrooms in Yolanda-affected areas by 2015

1
DPWH Presentation during the Economic Briefing held last November 2014 at University of Asia
& the Pacific

11
 Construction of ongoing major DPWH Projects as presented in the table below:

Table 11: On-going DPWH Projects

Project Name Length (km) Value Completion

(USD Million)
Tarlac-Pangasinan-La Union Expressway 88.85 412.05 2018
Daang Hari-SLEx Link 4.00 45.68 2014
STAR, Lipa Batangas , Phase II 19.74 52.73 2015
NAIA Expressway 7.15 280.00 2015
Metro Manila Skyway Stage 3 14.82 605.91 2017
Manila North Expressway including NLEx-SLEx 26.27 657.95 2017
Connector Road
Plaridel By-Pass Road, Phase II 9.96 77.95 2017

Source: Department of Public Works and Highways

Construction of recently awarded Public-Private Partnership (PPP) Projects such

as the: 1) USD129 Million Modernization of the Philippine Orthopedic Center, 2)
$39 Million Automated Fare Collection System, 3) USD389 Million Mactan-Cebu
International Airport Passenger Terminal Building, 4) USD1.44 Billion LRT 1
Cavite Extension and Operation & Maintenance, and 5) USD56 Million
Integrated Transport System Southwest Terminal Project. Other big ticket PPP
projects that will be rolled out in the coming quarters/years are presented in the
table below:

Table 12: Pipeline of Major PPP Infrastructure Projects

Project Name Value Status

(USD
Million)
Laguna Lakeshore Expressway Dike 2,791.14 Bidding phase
Bulacan Bulk Water Supply Project 554.55 Bidding phase
Integrated Transport System South Terminal Project 90.91 Bidding Phase
Operation and Maintenance of LRT Line 2 - Pre-qualification stage
Airport Development, Operations and Maintenance 2,586.36 For issuance of pre-qualification
Project documents
Davao Sasa Port Modernization Project 922.05 For issuance of invitation to bid
Regional Prison Facilities 1,140.45 For issuance of invitation to bid
CALA Expressway 805.23 For rebidding
Makati-Pasay-Taguig Mass Transit System Loop 8,598.41 Government approved
Source: PPP Center

Inflation rate shall remain stable and within BSPs target of 2.0% to 4.0% for 2015. The
geopolitical tensions in Middle East and Ukraine-Russia may put upward pressure,
especially if they escalate, to global oil prices, which in turn, will put upward pressure to
domestic prices. The direction of short-term interest rate (i.e. 91-day T-bill) shall depend
largely on the movement of inflation rate.

Personal remittances from Overseas Filipino Workers (OFWs), which reached US$24.4
billion in January-November 2014 and is 6.2% higher than the same period a year ago,
will sustain its rise in 2015 given steady demand for skilled and professional Filipino
manpower supported the growth in remittance inflows. From January to November

12
2014, job orders have reached 855,357. Higher remittances will continue to drive private
spending in domestic economy and help the peso minimize the effects of a stronger
dollar.

The Philippine BPO industry will remain robust in 2015 as the country remains a popular
hub in the Asia-Pacific. Expansion of services and geographical scope will also help the
industry to sustain growth in 2015. The estimated revenue of USD18 billion in 2014 can
be sustained in 2015 given strong demand for BPO services in the Philippines. The
projection of 1.3 million employment in BPO industry in 2016 is another indicator that
there will be positive growth rates in this industry.

Tourism visitor receipts have reached USD3.895 billion in January-October 2014, 7.14%
higher than the same period a year ago. For October 2014 alone, tourism receipts have
reached USD333.10 million, 8.02% higher than the same month the previous year. Top
five visitors are Koreans, United States, Australia, Japan and China (Department of
Tourism).

Number of tourists visiting the Philippines is expected to increase in 2015 especially with
DOT declaring 2015 as Visit the Philippines Year and The Lonely Planet recently
tagged the country as a must-see destination in 2015. Tourism sector is expected to
attract 8.2 million travellers in 2015 while increasing its share to GDP to USD21.85
billion and employing 6.3 million workers. The APEC meetings, which started in
December 2014 and will continue until November 2015, will pave way for more
construction of hotels and office buildings in the country.

13