High Tech, High Touch, High Gear ECONOMICBRIEFING November 8, 2006 November 8, 2006 UNIONBANK

High Tech, High Touch, High Gear Economic Profile / Basic Trends

High Tech, High Touch, High Gear YEARLY GROWTH QUARTERLY GROWTH ECONOMIC PROFILE As of end 2005 GNP: PhP5.8 trillion or USD105 billion GDP: PhP5.4 trillion or USD98 billion Population: 85.3 million GDP Per Capita: PhP63,463 or USD1,196 Annual Per Capita Poverty Threshold: PhP12,267 Poverty Line: 24.7% STRUCTURE OF OUTPUT 2005 Source of base data: National Economic & Development Authority I. ECONOM Y A small, moderately growing economy

High Tech, High Touch, High Gear Declining agriculture share, rising services contribution PERCENTAGE CONTRIBUTION OF ECONOMIC SECTORS TO GDP GDP BREAKDOWN BY ECONOMIC SECTOR At current prices Source of base data: 2005 Philippine Statistical Yearbook In million pesos I. ECONOM Y

High Tech, High Touch, High Gear More than half of the country’s GDP comes from 3 regions I. ECONOM Y Source of base data: NEDA

High Tech, High Touch, High Gear MIMAROPA, fastest growing Source of base data: NEDA I. ECONOM Y

High Tech, High Touch, High Gear I. ECONOM Y Source of base data: NEDA

High Tech, High Touch, High Gear GROSS REGIONAL DOMESTIC PRODUCT NCR, REGION IV and PHILIPPINES (REMAINDER) AVERAGE 1990 – 2005 at Current Prices Source of base data: 2005 Philippine Statistical Yearbook I. ECONOM Y In billion pesos

High Tech, High Touch, High Gear GROSS REGIONAL DOMESTIC PRODUCT (excluding NCR & REGION IV) 1990 – 2005 at Current Prices Source of base data: 2005 Philippine Statistical Yearbook I. ECONOM Y

High Tech, High Touch, High Gear PERSONAL CONSUMPTION EXPENDITURE BY PURPOSE Source of base data: NSCB Consumption pattern remains almost the same I. ECONOM Y

High Tech, High Touch, High Gear Source of base data: 2005 Philippine Statistical Yearbook Population growth projected to slow further I. ECONOM Y

High Tech, High Touch, High Gear Fiscal and External Sectors

High Tech, High Touch, High Gear Sources of base data: NEDA & Bureau of the Treasury In billion pesos Fiscal deficit narrows I. ECONOM Y

High Tech, High Touch, High Gear Sources of data: Department of Finance, BIR, BSP Fiscal dynamics improve I. ECONOM Y

High Tech, High Touch, High Gear Source of data: Bangko Sentral ng Pilipinas In million USD I. ECONOM Y Comfortable BoP

High Tech, High Touch, High Gear Source of base data: National Statistical & Coordination Board +16.2% III. WEAK LINKS BREAKDOWN OF EXPORTS Exports seen to slow in 2007

High Tech, High Touch, High Gear Source of base data: National Statistical & Coordination Board + 9.6% III. WEAK LINKS Imports expected to slow as well BREAKDOWN OF IMPORTS

High Tech, High Touch, High Gear OIL IMPORT VOLUME, in million barrels OIL IMPORT BILL, in million barrels +38% +33% Declining on average by 3.5 million barrels per year Source of base data: Department of Energy Rising import bill III. WEAK LINKS

High Tech, High Touch, High Gear ENERGY SUPPLY MIX Increasing supply of alternative fuels Source : Department of Energy

High Tech, High Touch, High Gear Low foreign direct investments NET FOREIGN DIRECT INVESTMENTS In Million USD Source of base data: Bangko Sentral ng Pilipinas

High Tech, High Touch, High Gear Lower portfolio inflows Source of base data: Bangko Sentral ng Pilipinas NET FOREIGN PORTFOLIO INVESTMENTS In Million USD

High Tech, High Touch, High Gear GROSS INTERNATIONAL RESERVES Source of base data: Bangko Sentral ng Pilipinas Forex reserves hit all-time high In billion USD NET INTERNATIONAL RESERVES In billion USD IMPORT COVER (x) I. ECONOM Y

High Tech, High Touch, High Gear Rating companies on wait-and-see Source of base data: Bloomberg SOVEREIGN RATINGS

High Tech, High Touch, High Gear MOODYS - Achievement of the 2006 budget targets for P75 billion in additional VAT revenue and of fiscal deficit to around 2.1% of GDP What could change the outlook up? SOVEREIGN RATINGS

High Tech, High Touch, High Gear AaaAa1Aa2Aa3 MOODY’S RATINGS A1A2 China A3 HK Baa1Baa2Baa3Ba1 S&P RATINGS Ba2 Philippines Ba3 Korea B1B2B3 India Malaysia Indonesia Mexico Brazil Singa pore Caa1Caa2Caa3 Thailand BB- AAA AA-A+AA+A A- BBB+BBBBBB-BB+ BBB+ Poland BB- CCC+CCC CCC- HK Philippines Indonesia Czech Singa pore Thailand Turkey Brazil China Ecuador Korea Russia Argentina Poland Ecuador Russia Argentina Vietnam Turkey AA India Malaysia Czech SOVEREIGN RATINGS

High Tech, High Touch, High Gear Bright Spots

High Tech, High Touch, High Gear WORKERS’ REMITTANCES AND MIGRANT TRANSFERS Source: Global Economic Prospects 2006: Economic Implications of Remittances and Migration, World Bank. In million USD, (Estimates include both coursed and not coursed through the banking system) Filipino remittances, fourth largest in the world II. BRIGHT SPOTS

High Tech, High Touch, High Gear +15.8% Rising importance of remittances OFW REMITTANCES In Billion USD OFW REMITTANCES / GNP Source of base data: Bangko Sentral ng Pilipinas II. BRIGHT SPOTS

High Tech, High Touch, High Gear II. BRIGHT SPOTS Source: University of Asia & the Pacific

High Tech, High Touch, High Gear Increasing rate of labor migration Source of base data: Philippine Overseas Employment Authority AVERAGE MONTHLY OFW DEPLOYMENT In Thousands I. ECONOM Y

High Tech, High Touch, High Gear BREAKDOWN OF CYBER-SERVICES REVENUES In million USD Source of base data: CICTwww.pes.com.ph Cyber-services projected to become another major dollar earner CYBER-SERVICES REVENUES In million USD II. BRIGHT SPOTS

High Tech, High Touch, High Gear CYBER-SERVICES REVENUES In million USD Source of base data: Philippines’ cyber-services, 1/3 the size of India II. BRIGHT SPOTS

High Tech, High Touch, High Gear VISITOR ARRIVALS In millions Growing number of visitor arrivals II. BRIGHT SPOTS Source of base data: Department of Tourism

High Tech, High Touch, High Gear AVERAGE LAND VALUE – MAKATI CBD & ORTIGAS CENTER Land value, office rents on the rise since 2002 II. BRIGHT SPOTS OFFICE RENTS – MAKATI CBD

High Tech, High Touch, High Gear OFFICE VACANCY RATE – MAKATI CBD Vacancy rates on downtrend II. BRIGHT SPOTS RESIDENTIAL VACANCY RATES – MAKATI CBD

High Tech, High Touch, High Gear NEW MOTOR VEHICLES REGISTERED BY TYPE Motorcycle / tricycle sales rapidly growing Source of base data : Land Transportation Office II. BRIGHT SPOTS

High Tech, High Touch, High Gear NEW VEHICLE REGISTRATION BY REGION (ALL TYPES) NEW MOTORCYCLE/TRICYCLE REGISTRATION BY REGION Source of base data : Land Transportation Office NCR, C. Luzon & C. Visayas, biggest buyers of vehicles II. BRIGHT SPOTS

High Tech, High Touch, High Gear Huge potential in mining II. BRIGHT SPOTS Source of base data : NEDA As at the end 2005, a total of 24 mining projects were identified, which have attracted USD339.7 million in FDI and created over 5,000 jobs.

High Tech, High Touch, High Gear Growing Sectors Remittance Remittance Cyber Services Cyber Services Tourism / Medical Tourism Tourism / Medical Tourism Telecommunications Telecommunications Construction / Real Estate Construction / Real Estate Low-end Vehicles Low-end Vehicles Education Education Wellness Wellness Infrastructure Infrastructure Power Power Mining Mining

High Tech, High Touch, High Gear Weak Links

High Tech, High Touch, High Gear CUSTOMER LOAN GROWTH Economic upcycle, “Property & middle- market boom” Period of excess capacity & deleveraging Rapid expansion of FCDU loans; Continued trade liberalization; Several cuts in reserve requirement Weak loan growth Source of base data: Bangko Sentral ng Pilipinas Nine years of weak loan growth III. WEAK LINKS

High Tech, High Touch, High Gear Sources of base data: PDIC & BSP Flat overall loan level, growing consumer finance In Billion Pesos CONSUMER LOANS / TOTAL LOANS

High Tech, High Touch, High Gear Source of base data: Bangko Sentral ng Pilipinas Declining, but still huge, non-performing assets NON-PERFORMING LOANS In Billion Pesos GROSS ROPOA In Billion Pesos III. WEAK LINKS

High Tech, High Touch, High Gear III. WEAK LINKS Modest growth in manufacturing Source of base data: NEDA BREAKDOWN OF GROSS VALUE ADDED

High Tech, High Touch, High Gear VOLUME OF PRODUCTION INDEX 1994=100 Source of base data: National Statistical Coordination Board III. WEAK LINKS Production remains in negative territory

High Tech, High Touch, High Gear Source of base data: National Statistical Coordination Board AVERAGE CAPACITY UTILIZATION III. WEAK LINKS Excess capacity remains

High Tech, High Touch, High Gear Declining share to GDP WATER TRANSPORT GROSS VALUE ADDED At Constant Prices, In billion pesos % SHARE TO GDP Source : NEDA III. WEAK LINKS

High Tech, High Touch, High Gear A small and barely growing sector AIR TRANSPORT GROSS VALUE ADDED At Constant Prices, In billion pesos % SHARE TO GDP Source of base data : NEDA LAND TRANSPORT GROSS VALUE ADDED At Constant Prices, In billion pesos % SHARE TO GDP III. WEAK LINKS

High Tech, High Touch, High Gear Ships and trains lose share to air transport SHIPS : PASSENGER TRAFFIC In millions AIR TRANSPORT : PASSENGER TRAFFIC TRAINS : PASSENGER TRAFFIC In millions III. WEAK LINKS

High Tech, High Touch, High Gear In metric tons in thousands FREIGHT SERVICE WAS NOT OPERATIONAL SINCE 1998 AIR TRANSPORT: CARGO TONS MOVEMENT TRAINS: FREIGHT TONS LOADED SHIPPING: CARGO THROUGHPUT III. WEAK LINKS

High Tech, High Touch, High Gear Prices

Source of base data: Bloomberg CRUDE OIL PRICE, USD per barrel Crude oil price increase eases … because of rising US inventories, slowing economic growth, & diminishing political tensions IV. PRICES

High Tech, High Touch, High Gear Sources of base data: Bangko Sentral ng Pilipinas, Bloomberg IV. PRICES Negative real interest rate

High Tech, High Touch, High Gear TREASURY BILL RATES 2003 to 2006, Monthly Figures – Auction Results IV. PRICES TREASURY NOTE / BOND RATES 2003 to 2006, Weekly Figures – Mart Rates Low interest rate environment

High Tech, High Touch, High Gear Source of data: Bangko Sentral ng Pilipinas YEARLY MONTHLY IV. PRICES Appreciating peso