Regional Economic Developments in the Philippines Foreword In June 2005 the Monetary Board approved the release of the maiden issue of the BSP’s Report on Regional Economic Developments (RRED). RRED widens the scope of BSP’s market surveillance, adding a geographic dimension to the economic indicators that it regularly monitors. The analysis of regional trends and developments helps in honing the BSP’s analytical tools for monetary policy formulation and financial supervision. The report tracks economic developments in the regions focusing on demand and supply conditions, monetary conditions and price developments as well as the regional outlook. It helps confirm the results of the business and consumer expectations surveys conducted by the BSP. Moreover, identifying opportunities and challenges faced by the different regions enhances the BSP’s forward-looking and proactive approach to monetary policy. Regional performance is assessed using output, prices, and employment data. Selected key indicators in each of the major sectors of the economy are the focus of the surveillance. Agriculture covers rice, corn, and other major crops, livestock, and poultry production. In industry, the number of building permits is used to measure construction activity; while in the services sector, hotel occupancy rate and banking sector performance are analyzed. Developments in major industries particular to each region are also included. Qualitative and quantitative information used in the report are collected from primary and secondary sources and reflect the extensive information gathered by the BSP regional offices and branches on a provincial level. Bangko Sentral ng Pilipinas Regional Economic Developments in the Philippines BSP Regional O ffices/Branches 1/ Batac Branch . TuguegaraoBranch La U nion Regional O ffice . Dagupan Branch . Cabanatuan Branch A ngeles Branch . Lucena Branch . N aga Branch . Legazpi Branch Kalibo Branch . Tacloban Branch Iloilo Branch . Cebu . Regional O ffice Bacolod Branch DumagueteBranch . O zamis Branch . Cagayan Zamboanga Branch Branch . de O ro Cotabato Branch Davao . Regional O ffice G eneral Santos City 1/ Please see Annex A for the provincial com position of each region. Bangko Sentral ng Pilipinas 2 Regional Economic Developments in the Philippines Key Regional Developments G ross Regional Product • Real gross dom estic product (G DP) grew by 5.0 percent in 2005, slow er than the 6.2 percent grow th attained in 2004. The deceleration in output stem m ed from the slow er grow th registered by N CR, CALABARZO N and W estern Visayas. The com bined output of these regions accounted for 51.6 percent of G DP. Crop Production • In the second sem ester of 2005, palay and corn production show ed an increase in grain grow ing areas such as Central Luzon and Ilocos but the tw o crops’ production level w as low er com pared to the previous year’s level due to flash floods, landfalls and rehabilitation of irrigation system s. Livestock, Poultry, Fishery • Cattle production recorded a decline on account of higher freight and acquisition costs of live cattle. Sw ine production, m eanw hile, posted an increase follow ing a positive turnaround in the production of m ajor hog- raising regions such as CALABARZO N and Central Luzon. Construction • Construction activity show ed a general dow ntrend as indicated by the decline in the num ber of building perm its in 10 out of 17 regions. The decline w as attributed m ainly to the increased cost of construction m aterials. Tourism • Tourism activity picked up in 2005 as reflected by the rise in hotel occupancy rate w hich w as traced to the grow th in the num ber of sem inars and conventions held in hotels as w ell as w alk-in visitors and independent travelers. Banking • Financial activity rem ained concentrated in the N CR as indicated by its higher loan-to- deposit ratio, reflecting that m ore loans are granted for every peso deposited w ith N CR banks. Bank density data also show ed that there w ere m ore banks servicing M etro M anila’s population on a per capita basis. Inflation • Inflation in the first eleven m onths of 2006 fell despite the continued rise in oil prices during the period. The drop w as attributed to the slow er increase in prices across m ajor com m odity groups, except for housing and Bangko Sentral ng Pilipinas 3 Regional Economic Developments in the Philippines repairs item in N ovem ber (year-on-year). A m arked easing in inflation w as recorded in W estern Visayas, Davao, Ilocos, N CR and Zam boanga Peninsula. Employment • Em ploym ent rates w ere highest in Zam boanga Cagayan Valley and M IM ARO PA. The rebound in agriculture and gains in services m ay have provided em ploym ent opportunities in the m ajor sectors of these regions. O pportunities and Challenges • The positive outlook for the Philippine econom y is supported by the G overnm ent’s planned im provem ent in irrigation and increased use of technology in farm ing, the building of strategic infrastructure, exploration and developm ent of energy sources and prom otion of tourist destinations. • Concerns and issues, how ever, need to be addressed including the need to m onitor the possible outbreak of avian influenza, degradation of forests and other natural resources, and the peace and order problem s such as the encounter betw een rebel groups and G overnm ent troops in Q uezon province. H igh oil prices and the im plem entation of the RVAT are expected to dam pen consum er spending. Economic Performance G ross Regional Product • The country posted a 5.0 percent increase in (2005) G ross Dom estic Product (G DP) in 2005 despite the sustained rise in international oil prices, w eak exports, and political uncertainties. Econom ic grow th w as fueled m ainly by the services sector on the supply side and consum er expenditures on the dem and side. The increase in G DP, how ever, w as slow er than the 6.2 percent registered in 2004. • The N ational Capital Region (N CR), GDP slows down in 2005 led by CALABARZO N and W estern Visayas, w hich N CR, Calabarzon and W estern accounted for m ore than half of the country’s Visayas. total dom estic output, registered slow er grow th in 2005. The slack in services, in particular transportation, com m unication and storage services, w eighed dow n on output grow th in the N CR. M eanw hile, the agriculture and services sectors slow ed dow n the grow th Bangko Sentral ng Pilipinas 4 Regional Economic Developments in the Philippines in CALABARZO N w hile low er agricultural output dam pened the econom ic grow th in W estern Visayas. O utput grow th picks up in • In contrast to the slow dow n registered by m ost Zam boanga Peninsula, Ilocos, regions, output grow th accelerated in the Central Luzon, M IM ARO PA and Zam boanga Peninsula, Ilocos, Central Luzon, M IM ARO PA and CARAG A. Rapid grow th in the CARAG A Zam boanga Peninsula w as traced to the faster Gross Regional Domestic Product grow th in agriculture and industry, in Growth Rates in Percent particular the double-digit increase in the Region 2004 2005 1 NCR 8.4 7.1 m ining sector. The m ain driver of grow th for 2 CAR 3.7 1.1 the Ilocos Region w as its agriculture sector 3 Ilocos Region (I) 5.4 6.0 4 Cagayan Valley (II) 10.4 -5.4 w hile the expansion in output in Central Luzon 5 Central Luzon (III) 1.8 2.9 6 Southern Tagalog-CALABARZON (IV-A) 4.0 3.0 w as boosted by the stronger agriculture sector 7 Southern Tagalog-MIMAROPA (IV-B) 4.1 6.5 and recovery in the m anufacturing sector. 8 Bicol Region (V) 5.7 5.0 9 Western Visayas (VI) 7.6 5.9 M IM ARO PA’s G DP grow th w as supported by the 10 Central Visayas (VII) 6.9 6.0 11 Eastern Visayas (VIII) 5.2 4.0 alm ost threefold increase in m ining and 12 Zamboanga Peninsula (IX) 4.1 7.2 quarrying, particularly its natural gas and 13 Northern Mindanao (X) 7.2 3.8 14 Davao Region (XI) 6.5 5.0 quarrying resources. The Caraga region 15 SOCCSKSARGEN (XII) 5.8 2.3 benefited from the grow th of its industry 16 ARMM 5.2 3.9 17 CARAGA 3.1 3.5 sector fueled by m anufacturing, follow ing an Source: National Statistics Coordinating Board upsurge in the production of cem ent and other chem icals in the region. The utilities subsector posted a 17.5 percent increase due to high electricity production and distribution activities. • The N CR dom inated econom ic activity as indicated by its 31.9 percent share to G DP. CALABARZO N cam e in a far second at 12.5 percent. W estern and Central Visayas follow ed w ith 7.3 percent and 7.1 percent share each. CALABARZO N tops agricultural • By econom ic activity, CALABARZO N ’s econom y, production w hile pre-dom inantly engaged in m anufacturing, rem ains a prem iere source of agricultural and fishery products. CALABARZO N topped agricultural producers w ith its 12.3 percent share to national agriculture, forestry and fishery (AFF). Its m ajor agricultural products include coconut, coffee, cabbage, hogs, and fish. The other regions w ith large shares in total AFF w ere Central Luzon (10.8 percent) and W estern Visayas (10.5 percent).