In 1999, the Philippines recovered from the output decline caused by the currency and financial turbulence that hit East and Southeast Asia starting in July 1997. Gross domestic (GDP) growth, spurred by the increase in government and personal consumption as well as exports, rebounded from ¨C0.6 percent in 1998 to 3.3 percent in 1999. The government¡¯s pump-priming activities contributed to the recovery as government consumption went from ¨C1.9 percent in 1998 to 5.3 percent in 1999. Meanwhile, total exports of goods and services turned around from a decline of 21 per cent in 1998 to a growth of 3.6 percent in 1999. The growth in total exports stemmed largely from the gain in merchandise exports (8.7.percent) which was bolstered by increased exports of finished electrical machinery semiconductors and electronics, ignition wiring harness and other manufactured products.

On the production side, agriculture, services and industry all joined the expansion with growth rates of 6 percent, 4.1 percent and 0.9 percent respectively, in 1999. Higher growth in the gross value added (GVA) of the economy¡¯s major crops including palay, corn, sugarcane and banana largely contributed to the 6.4 percent growth of agriculture and fishery. Agricultural gross value added (GVA) had decreased by 6.5 percent in 1998 on account of the El Ni?o. Favorable weather conditions, investments in irrigation systems, proper usage of farm inputs, and increased use of certified seeds boosted palay production by 37.8 percent in 1999. Increases in the GVA of private services (5.8 percent), transportation, communication and storage (5.3 percent) and trade (4.9 percent) contributed to the steady performance of services which grew from 3.5 percent in 1998 to 4.1 percent in 1999. The industry sector got a lift from manufacturing, which grew 1.6 percent to overcome the decline of 1.1 percent in 1998. Mining and quarrying, however, declined 8.4 percent, in view of depressed world market prices of metals, suspension in operation of some mining companies and the economic slowdown of importing countries.

The economy continued to perform well in the first half of 2000 recording a growth of 3.9 percent. This was mainly attributed to the 12.3 percent growth in exports of goods and services. Merchandise exports increased by 15.8 percent due largely to the increase in exports of semiconductors and electronic microcircuits (21.1 percent) and garments (11.3 percent). Personal consumption expenditures also increased by 3.2 percent arising from higher household expenditures on electrical appliances, increased cellular and landline phone subscriptions, and higher expenditures on utilities (i.e., fuel, light and water). In contrast, government expenditures contracted by 0.5 percent in the first half as a result of continued cuts in maintenance and other operating expenses to maintain the targeted deficit for the year.

Industry rebounded to register a growth of 4.1 percent against ¨C1.5 percent in the first half of 1999. Manufacturing grew by 6.1 percent during the first half of 2000 on account of higher growths attained in electrical machinery (31.6 percent), paper and paper products (28.9 percent) and transport equipment (28.2 percent). Mining and quarrying turned around from a ¨C14.9 percent a year ago to a 14.1 percent increase in the first semester of 2000. The increase was largely due to the substantial increases in gold, nickel and crude oil production.

Reflective of the rapid change in technology, the communications sub-sector grew by 16.1 percent in the first half of 2000. Increases in the subscriber base of wireless and landline communication services, and the emergence of data and other network services were the main source of growth. As a whole, the services sector grew by 4.4 percent in the first semester.

The agriculture sector continued to recover from the effects of El Ni?o and La Ni?a weather disturbances which led to the better than expected increase in production in the second quarter of the first semester of 2000. Production of palay, the economy¡¯s staple crop, grew by 3.2 percent. Additional fruit bearing plants and good crop maintenance also resulted in increase in the production of banana by 11.4 percent. Fishery production grew by 0.8 percent.

INFLATION

Despite the inflationary pressures exerted by the series of oil price increases, wage and transport fare hikes, inflation went down to an average of 6.6 percent in 1999, compared to 9.8 percent in the previous year, and below the government¡¯s inflation target of 7 percent.

The country¡¯s inflation rate continued to go down registering at 3.4 percent for the first half of 2000. The increase in agriculture production in the first semester resulted in an inflation rate of just 0.73 percent for food, beverage and tobacco compared to 8.48 percent in the first half of 1999. The minimal increase in food prices together with lower price increases for clothing (2.45 percent) and housing and repairs (6.12 percent) offset the increase in the inflation rate recorded for fuel, light and water from 5.25 percent during the first half of 1999 to 8.95 percent during the first half of this year.

EMPLOYMENT

Total employment grew 3.8 percent in 1999. The total number of employed people increased from 27.9 million in 1998 to 29 million in 1999, an increase in the employment rate to 90.3 percent from 89.9 percent. Employment in agriculture increased by 6.5 per cent, and services by 3.5 percent. Meanwhile, the overall unemployment rate decreased to 9.7 percent in 1999 from 10.1 percent in 1998. In absolute numbers, the unemployed decreased from 3.143 million to 3.102 million in 1999.

For the first half of 2000, however, the unemployment rate increased to 11.6 percent compared to 10.4 percent during the same period in 1999. Except for the services sector which registered increased employment by 3.4 percent, agriculture and industry including manufacturing registered decreases in employment for the first half of 2000. The decrease in employment in agriculture is mainly seasonal in nature as the second quarter coincides with the post-harvest rest period for farmers.

TRADE ACCOUNTS

The recovery was accompanied by an increase in the current account surplus, which expanded 369 percent from US$1.5 billion in 1998 to US$7.2 billion in 1999. Exports of goods grew 19 percent, outpacing imports¡¯ 4.1 percent growth, resulting in a surplus of US$4 billion, compared to the deficit of US$28 million in 1998. Manufactured products constituted the bulk of Philippine exports with a share of 89.4 percent. Exports of electrical and electronic equipment/parts and telecom remained the top export items, which grew 23.5 percent in 1999 followed by machinery and transport equipment, which expanded by 49.3 percent. Likewise, service trade receipts exceeded payments by US$2 billion in 1999 for an increase of 110.8 percent over the previous year¡¯s surplus of US$1.1 billion.

Net foreign investments declined by 27.2 percent as a result of a reduction in direct investments, new foreign investments and reinvested earnings by an average of 44 percent in 1999. However, portfolio investments increased by 93.9 percent during the same period from higher placements which increased 206.9 percent. Despite the drop in net investments, the overall balance of payments posted a surplus of US$3.8 billion in 1999 compared to US$1.4 million in 1998. The improved external payments position allowed the government to build-up its international reserves to US$15.1 billion, 39.8 percent higher than the previous year¡¯s level of US$10.8 billion.

The current account surplus further increased growing by 24 percent from US$2.9 billion in the first half of 1999 to US$3.6 billion in the first semester of 2000. Exports of goods and services grew by a hefty 362.1 percent to reach US$1.4 billion in the first half of 2000 as it recovers from a US$546 million decline a year earlier. However, the economy¡¯s capital and financial account balance declined by 170 percent due to decreases in direct investment (71 per cent) and portfolio investments (110.7 percent). Overall the BOP position as of the first half of 2000 stands at US$205 million compared to US$2.9 billion in the first semester of 1999.

GROSS EXTERNAL DEBT

Total foreign exchange liabilities in 1999 went up to US$52.2 billion from US$47.8 billion in 1998. Around US$307 million (P 120 billion) in foreign borrowings was utilized to finance the national government¡¯s budgetary deficit of P 111.7 billion in 1999, redeem some of its debts and build up its cash position. Medium- and long-term loans comprised the bulk of total liabilities with a share of 89 percent compared to short-term loans with a share of 11 percent. The public sector was the biggest borrower with a 55.6 percent share in total liabilities followed by the private/business sector at 25.4 percent and the banking sector with 19 percent. The economy¡¯s total foreign exchange liabilities increased by US$205 million from US$52.2 billion as of end-1999 to US$52.4 billion as of the first quarter of 2000.