Philippines Economic Update DECEMBER 2021 EDITION ...

1 1 Philippines Economic Update DECEMBER 2021 EDITIONP hilippines Economic UpdateDECEMBER 2021 EDITIONR egaining Lost Ground, Revitalizing the Filipino WorkforceIIPHILIPPINES Economic Update DECEMBER 2021 EDITIONP refaceThe 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 recent World Bank analyses, situating them in the context of the country s long-term development trends and assessing their implications for the country s medium-term Economic outlook. The Update covers issues ranging from macroeconomic management and financial-market dynamics to the complex challenges of poverty reduction and social development.

2 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 PEU is a biannual publication of the World Bank s 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); and Governance Global Practices. Lars Christian Moller (Practice Manager for the MTI GP), Souleymane Coulibaly (Lead Economist and Program Leader), and Rong Qian (Senior Economist) guided the preparation of this EDITION .

3 The team consisted of Kevin Chua (Senior Economist), Kevin Cruz (Economist), Karen Lazaro (Research Analyst), Eduard Santos and Ludigil Garces (Consultants) from the MTI GP; Isaku Endo (Senior Financial Sector Specialist), Uzma Khalil (Senior Financial Sector Specialist) and Ou Nie (Financial Sector Specialist) from the FCI GP; Nadia Belghith (Senior Economist) and Sharon Piza (Economist) from the Poverty & Equity GP; Yoonyoung Cho (Senior Economist) and Ma. Laarni Revilla (Consultant) from the SPJ GP; Junu Shrestha (Senior Environmental Specialist) and Agnes Balota (Environmental Specialist) from the Environment and Natural Resources GP; and Ekaterina Vashakmadze (Senior Economist).

4 Yoonyoung Cho, Ruth Rodriguez, Dung Doan, and Ma. Laarni Revilla prepared the Special Focus Note on Jobs for Filipinos, Jobs for the Future, under the guidance of Yasser El-Gammal (Practice Manager). The report was edited by Oscar Parlback (Consultant), and the graphic designer was Pol Villanueva (Consultant). Peer reviewers were Ilyas Sarsenov (Senior Economist), Derek Hung Chiat Chen (Senior Economist), Achim Schmillen (Program Leader), Indhira Santos (Senior Economist), Ergys Islamaj (Senior Economist), Daisuke Fukuzawa (Junior Professional Officer), and Duong Le (Research Analyst). Logistics and publication support were provided by Kristiana Rosario (Team Assistant).

5 The Manila External Communications Team, consisting of Clarissa David (Senior Communications Officer) and David Llorito (Communications Officer), prepared the media release, and Stephanie Margallo (Program Assistant) and Moira Enerva (Consultant) prepared the web and social media package. 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 as well as from the government, the business community, labor associations, academic institutions, and civil society.

6 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 views of the World Bank s 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 Kristiana Rosario For questions and comments regarding the content of this publication, please contact Kevin Chua Questions from the media should be addressed to David Llorito For more information about the World Bank and its activities in the Philippines , please visit Economic Update DECEMBER 2021 EDITIONT able of Contents Preface IITable of Contents IIIList of figures IVList of tables IVList of boxes IVAbbreviations and acronyms VExecutive Summary 7 Part I.

7 Recent Economic and Policy Developments 10 Economic Growth: Gaining Steam 11 External Sector: Reversal to a Balance-of-Payments Deficit 15 Inflation and Monetary Policy: Accommodative Policy Despite Inflationary Pressures 18 Fiscal Policy: Mounting Fiscal Pressure 22 Employment and Poverty: Fragile Recovery 23 Part II.

8 Outlook and Risks 25 Growth Outlook 26 Poverty and Shared Prosperity 32 Risks and Policy Challenges 33 Part III. Jobs for Filipinos, Jobs for the Future 36 3.

9 1 Jobs Market and COVID-19 37 Government s Labor Market Response to COVID-19 49 Jobs Policy Priorities in the Philippines 51 References 59 List of figures Figure 1.

10 The Economic rebound gained steam in Q3 2021. 11 Figure 2. COVID-19 cases have declined from its September 2021 peak. 11 Figure 3. Vaccinations continued to lag ASEAN peers. 11 Figure 4. Improvements in domestic activity contributed to the recent growth. 13 Figure 5. Industry and services drove growth on the production side. 13 Figure 6. Goods trade began to return to pre-pandemic levels. 16 Figure 7. The recovery of imports swung the current account and overall BOP back into deficits in H1 2021. 16 Figure 8. Following most regional peers, the country s FDI surged in H1 2021. 16 Figure 9. The Philippine peso remained among the strongest currencies in the region.