QRT ECO CHART 1 AUGUST 2, 2012 we tell it like it is 3 RD Quarterly Roundtable Gary B. Teves Managing Director August 2, 2012 Rigodon Ballroom A & B, Peninsula.

QRT ECO CHART 1

AUGUST 2, 2012

we tell it like it is

3RD Quarterly Roundtable

Gary B. TevesManaging Director

August 2, 2012

Rigodon Ballroom A & B, Peninsula Manila Hotel

QRT ECO CHART 2

AUGUST 2, 2012

A SURPRISING 6.4% GROWTH IN 1Q12 UP FROM 4.9% IN 1Q11

REBOUND IN GOV’T SPENDING: O&M EXPENSES +24%

INFRA/CAPEX +62.2%

STRONG CONSUMER SPENDING (OFWs, CCT, ETC.) +6.6%, 35-YEAR HIGH! 6.9% IN 1977

SOME RECOVERY IN EXPORTS: +7.9% VS. +3.9% 1Q11

0

1

2

3

4

5

6

7

8

9

1Q00 4Q 3Q 2Q

1Q03 4Q 3Q 2Q

1Q06 4Q 3Q 2Q

1Q09 4Q 3Q 2Q

1Q12

Source: National Statistical Coordination Board (NSCB)

QUARTERLY GDP GROWTH RATES (%, AT ‘00 PRICES)

QRT ECO CHART 3

AUGUST 2, 2012

SERVICE SECTOR DRIVEN

SERVICES UP 8.5% IN 1Q12, MORE THAN DOUBLE 3.6% IN 1Q11…

REAL ESTATE +24.3%

HOTELS & RESTAURANTS +10.9%

RETAIL TRADE +10.1%

COMMUNICATIONS +9.8%

… AND CONSUMER-DRIVEN

MAJOR CONTRIBUTION TO GDP INCREASE WERE RETAIL, FOOD MANUF’G, TELECOMS (MOBILE), REAL ESTATE AND RECREATION

QRT ECO CHART 4

AUGUST 2, 2012

SOURCES OF GROWTH (% OF INCREASE IN GDP)

9 INDUSTRIES = 75.3% OF GDP INCREASE (OUT OF 46 INDUSTRIES)

OTHERS 24.7%

RETAIL 18.5%

FOOD MANUF’G8.7%

TELECOM7.7%

INFRA 7.5%

REAL ESTATE7.1%

RECREATIONAL 6.5%

FURNITURE6.3%

BANKING 5.1%

RENTING 4.3%

QRT ECO CHART 5

AUGUST 2, 2012

SECOND FASTEST IN EMERGING ASIA IN 1Q12

REAL ANNUAL GDP GROWTH RATE:SELECTED ASIAN COUNTRIES (%)

COUNTRY 1Q12 1Q11AVE.

1Q12&1Q11

CHINA 8.1 9.7 8.9

PHILIPPINES 6.4 4.9 5.7

INDONESIA 6.3 6.5 6.4

INDIA 5.3 8.5 6.9

MALAYSIA 4.7 5.2 5.0

VIETNAM 4.0 5.6 4.8

SOUTH KOREA 2.8 4.2 3.5

SINGAPORE 1.6 9.1 5.4

TAIWAN 0.4 6.6 3.5

THAILAND 0.3 3.2 1.8

BUT IT’S JUST ONE QUARTER: AVE. OF 2 QUARTERS PH PERFORMED JUST WITHIN ASIAN AVE ONLY

QRT ECO CHART 6

AUGUST 2, 2012

ECONOMIC RESULTS SUMMARY(% REAL GROWTH RATE)

ITEM 1Q12 1Q11 2011

GDPGNI

6.45.8

4.93.5

3.93.2

CONSUMER SPENDINGGOV’T CURRENT EXP.FIXED INVESTMENT PUBLIC CONSTRACTION (INFRA) PRIVATE CONSTRACTION (PROPERTY) PLANT & EQUIPMENTEXPORT GOODS & SERVICESIMPORT GOODS & SERVICES

6.624.02.8

62.2-9.93.67.9-2.6

5.9-15.812.5-37.923.017.23.9

11.2

6.31.00.2

-31.84.55.2-4.20.2

AGRICULTUREINDUSTRYSERVICES

1.04.98.5

4.47.32.8

2.72.35.1

QRT ECO CHART 7

AUGUST 2, 2012

IS IT SUSTAINABLE?NOT AT 6%++ IN 2012

IMPORTS ARE WEAK, DOWN -2.6% IN 1Q12 = NO INDUSTRIAL SURGE, WEAK IND’L ACTIVITY

FIXED INVESTMENT SLUGGISH, UP ONLY 2.8% = CAPACITY CONSTRAINTS TO GROWTH

WORLD ECONOMIC ENVIRONMENT NOT PROMISING, TOO -6

-2

2

6

2009

2010

2011

2012

WORLD US EURO AREA

GDP GROWTH:US, EUROAREA, WORLD

WEAKEST US RECOVERY IN 4 DECADES

EUROZONE IN A RECESSION – FINANCIAL CRISIS IN SOME AREAS COULD IMPACT ADVERSELY GLOBALLY

CHINA A SLOWING GROWTH LOCOMOTIVE FOR ASIA

QRT ECO CHART 8

AUGUST 2, 2012

FASTER GROWTH IN 2013

INFRASTRUCTURE SPENDING IN FULL SWING, ACCELERATING IN 2013

CONSUMER SPENDING SUSTAINED BY:

P39B CONDITIONAL CASH TRANSFER + OTHER ANTI-POVERTY SUBSIDIES

OFW REMITTANCES

IT-BPO JOB CREATION

ACCESS TO CREDIT + STABLE PRICES

2012 PROJECT COST

DAANG HARI-SLEX ROAD P2.0B

SCHOOL INFRASTRUCTURE 10.0B

LRT-1 EXTENSION 59.2B

NAIA X’WAY II 15.8B

2013

NLEX-SLEX CONNECTOR P20.1B

CAVITE-LAGUNA X’WAY 19.7B

P. PRINCESA AIRPORT O&M N.A.

LAGUINDINGAN AIRPORT O&M 1.8B

PANGLAO AIRPORT 8.0B

LRT 2 EXTENSION 11.9B

MAJOR PPP PROJECTS IN 2012/2013

11

QRT ECO CHART 9

AUGUST 2, 2012

FASTER GROWTH…FASTER GROWTH… 22

INVESTMENTS TO START PICKING UP: MINING & MINERAL PROCESSING PLANTS: 2013 & ONWARDS

RENEWABLE ENERGY – MINI-HYDROS & BIO MASS

AGRI-BUSINESS: BEVERAGES (COFFEE), DAIRY PRODUCTS, ORGANIC & HALAL FOODS, ETC.

EXPANSION OF AUTO PARTS, ELECTRONICS, GARMENTS

PROPERTY DEVELOPMENT STILL BOUYANT:

OFFICE SPACE FOR BPO’S (BPO GROWING ~20% P.A.)

HOTELS & RESORTS TO SUPPORT INCREASE IN TOURISTS 4M ‘12 8M ‘16

BUT RESIDENTIAL CONDOS COULD SLOW BY 2013+ DUE TO EXCESS SUPPLY

PH ABLE TO INSULATE ITSELF FROM EXTERNAL THREATS 6-7% GDP GROWTH IN 2013

QRT ECO CHART 10

AUGUST 2, 2012

PH INDUSTRIAL STRUCTURE NOT DEEP AND DIVERSIFIED ENOUGH TO SUSTAIN “POTENTIAL” GROWTH OF 7%+

BUT BACK TO 5-6% 2014/2015

INDUSTRY’S SHARE TO THE ECONOMY (GDP) HAS FALLEN IN PAST 10 YEARS

MANUFACTURING’S SHARE DOWN, TOO

MANUF’G DOMINATED BY JUST 4 INDUSTRIES, INCL. F&B AND ELECTRONICS = 66% OF TOTAL

EXPORTS NOT DIVERSIFIED: 60% ARE ELECTRONICS & AUTO PARTS

20

30

40

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

INDUSTRY MANUF'G

INDUSTRY AND MANUFACTURING (% OF GDP)

QRT ECO CHART 11

AUGUST 2, 2012

KEY BUSINESS COST FORECAST

11

EXCHANGE RATE

P:$ RATE STILL APPRECIATING IN 2012 43-44 END ‘11 41-42 TODAY, P42:$1 AVE ’12 WITH MORE DOLLAR INFLOWS DUE TO: OFW REMITTANCES STILL RISING 5-6%

BPO STILL DELIVERING THE $’S

TOURISM EXPERIENCING A MODEST BOOM STEADY AT NEAR 42 IN 2013 AS BSP ADOPTS MEASURES TO SLOW INFLOW

OF PORTFOLIO INVESTMENTS, LIBERALIZE OUTFLOW OF $’S

DEPRECIATES SLIGHTLY IN 2013 AS US$ STRENGTHENS WITH US RECOVERY, EURO AREA HITTING BOTTOM (= SOME OUTFLOW OF $ TOWARDS US, ETC.)

QRT ECO CHART 12

AUGUST 2, 2012

KEY BUSINESS COST FORECAST…KEY BUSINESS COST FORECAST… 22

INTEREST RATES

AT HISTORIC LOWS IN 2012, 6-7% PRIME; 91-DAY TBILL RATES 2-3%

BUDGET DEFICIT UNDER CONTROL DESPITE INCREASED SPENDING LOW WORLD INTEREST RATES, ALMOST ZERO POLICY RATES

IN EURO AREA CREDIT RATING UPGRADES (TO ONE-NOTCH BELOW INVESTMENT-

GRADE)= REDUCED RISK PREMIUM= IMPROVED FDI PROSPECTS

BSP CUTTING KEY RATES ALMOST UNCHANGED IN 2013: BSP KEEPS RATES LOW TO ARREST

PESO APPRECIATION + POSSIBLE INVESTMENT-GRADE CREDIT RATING

UP SLIGHTLY IN 2014 LOAN DEMAND , LOW BASE PAST 3 YEARS, GLOBAL RECOVERY MORE WIDESPREAD

QRT ECO CHART 13

AUGUST 2, 2012

INFLATION

RECEEDING IN 2012 DUE TO SOME DECLINE IN WORLD OIL, COMMODITY PRICES WITH WEAK GLOBAL DEMAND

CLIMBS BACK TO NEAR HISTORICAL (10-YEAR) AVE. OF 4 ½% IN 2013/2014 AS DOMESTIC DEMAND RISES WITH FASTER ECONOMIC GROWTH, WORLD OIL,

COMMODITY PRICES FIRM UP

WORLD CRUDE OIL PRICE(AVE OF 3 SPOT CRUDE, $/BBL)

70

85

100

115

2010

2011

2012

2013

2014

QRT ECO CHART 14

AUGUST 2, 2012

FORECAST UPDATEITEM 2011 2012 2013 2014/2015

% GROWTH:GDPGNI

3.72.6

6.06.0

6-76-7

5-66-7

CONSUMER SPENDINGGOV’T CONSUMPTION FIXED INVESTMENTEXPORT GOODS & SERVICESIMPORT GOODS & SERVICES

6.1-0.72.7-3.81.9

6.46.63.04.03.0

6-77-85-66-77-8

5-65-66-85-76-8

AGRICULTUREINDUSTRYSERVICES

2.61.95.0

2.04.58.2

3-45-68-9

3-45-76-8

P:RATE (AVE)BANK LENDING RATE (%)91-DAY T-BILL RATE (%)INFLATION (%)

43.67.22.04.8

42.06.52.03.2

41.86.72.53.6

42-437-83-43-5

QRT ECO CHART 15

AUGUST 2, 2012

WHAT’S NEEDED TO GROW 7% P.A. AND ACHIEVE INCLUSIVE GROWTH?

11

THERE’S AN OPPORTUNITY TO DO SO BECAUSE IMPROVING STATE OF FINANCES GIVES PH MORE ROOM FOR GROWTH:

BUDGET DEFICIT REMAINS UNDER CONTROL (<<3% OF GDP) DESPITE STRONG SPENDING THIS YEAR

FOREIGN RESERVES STILL BUILDING UP: $76B AS OF JUNE, MORE THAN FOREIGN DEBT OF $62B

FOREIGN DEBT REDUCED TO 28% OF GDP, BETTER THAN 32% ASEAN AVE., WITHIN 25-30% ASIA-PACIFIC MEDIAN

QRT ECO CHART 16

AUGUST 2, 2012

WHAT’S NEEDED TO GROW 7% P.A…WHAT’S NEEDED TO GROW 7% P.A… 22

PH LIKELY TO ATTAIN “POTENTIAL” GROWTH (7% P.A.) IF THE FOLLOWING CONDITIONS EXIST:

INFRA SPENDING IS SUSTAINED AT 5% OF GDP OR HIGHER (ASEAN AVE.: 6%), NOT AT 3% THAT IT AVERAGED DURING PAST 5-6% YEARS

TAX EROSION AVOIDED, IN FACT TAX RATIO SHOULD BE IMPROVING TO >14%, TO SUPPORT HIGHER INFRA & BASIC SERVICES SPENDING

BETTER IF WE CAN ATTAIN 17% AS WE DID IN 1995-97 BEFORE ASIAN FINANCIAL CRISIS

GOVERNANCE & COMPETITIVENESS IMPROVE SIGNIFICANTLY WITH GLOBAL RANKINGS RISING TO UPPER HALF INSTEAD OF BOTTOM THIRD IN TI CORRUPTION RANKING (129TH OUT OF 182 COUNTRIES) AND COMPETITIVENESS RANKING (WEF: 75TH OUT OF 142)

QRT ECO CHART 17

AUGUST 2, 2012

WHAT’S NEEDED TO GROW 7% P.A…WHAT’S NEEDED TO GROW 7% P.A… 33

PASSAGE OF KEY REFORM BILLS, ESPECIALLY:

SIN TAX AMENDMENTS

FREEDOM OF INFORMATION

PUBLIC UTILITIES ACT AMENDMENTS

ANTI-TRUST

RATIONALIZATION OF FISCAL INCENTIVES

AMLA AMENDMENTS

IPR ACT AMENDMENTS

+ CHARTER CHANGE (ECONOMIC PROVISIONS)

SOME REFOCUSING ON INDUSTRIES/MANUF’G: DEVELOPMENT AND IMPLEMENTATION OF DOABLE INDUSTRY ROADMAPS

INCREASE IN FDI