In 2019, the Philippines remained as one of the fastest growing economies in Asia having sustained its growth momentum with real Gross Domestic Product (GDP) increasing by 5.9%. The economic expansion was driven by healthy household consumption and accelerated government expenditures in the latter half of the year as the government ramped-up infrastructure spending after the budget impasse in the first half.

On the production side, growth was buoyed by the resilient services sector, propelled by finance, public administration, and trade. The industry sector led by construction and utilities also supported the economic expansion. Meanwhile, the agricultural sector posted minimal growth as adverse weather conditions weighed down the sector’s production.

Inflation was on a downtrend for most part of the year, boosting purchasing power and improving consumer sentiment. The average 2019 inflation narrowed to 2.5% from 5.2% a year-ago with the easing of food prices. This provided monetary space for the Bangko Sentral ng Pilipinas (BSP) to cut its policy rate by a total of 75 bps, bringing BSP’s overnight reverse repurchase facility to 4.0% with the overnight lending and deposit facilities settling at 4.5% and 3.5%, respectively. This was complemented by a cumulative 400 bps cut in the banks’ reserve requirement ratio (RRR) implemented in stages beginning in April. The RRR cut released at least Php400 billion into the banking system that mitigated the threat of a liquidity crunch and boosted bank lending that rallied growth despite the fiscal handicap. As inflation wound down and monetary accommodation strengthened, the local yield curve compressed with a 10-year yield rallying to 4.5% from 7.8% in the fourth quarter of 2018 when inflation peaked.

Domestic spending, notably business capital spending, slowed down on the first half of 2019. Public construction eased as well with implementation caught up in delayed budget approvals coupled with a ban on public works and new project spending due to the mid-term elections. Against this backdrop, imports of raw materials and capital goods eased that resulted in the narrowing of the country’s trade gap. With sustained remittance flows from Overseas Filipino Workers (OFWs), revenues from Business Process Outsourcing (BPO) firms, and other service receipts largely unaffected by the U.S.-China trade conflict, the current account shifted to a near balanced position and supported an improving international reserve position. Amidst improving external trade imbalance, the Philippine Peso (Php) appreciated by 1.7% to an average of Php51.80/USD from Php52.66/USD in 2018.

The Philippine banking industry remained strong and stable as it continued to support financial stability and promote greater economic activity. Total resources increased steadily by 8.4% to reach Php18.3 trillion as of end‐December 2019 while deposits rose by 7.1% to Php13.7 trillion. Asset quality of Philippine banks continued to be healthy with the banking system’s gross non‐performing loan (GNPL) ratio steady at 2.0% even as bank lending accelerated by 8.8% in 2019. The loan exposures of banks were adequately covered as reflected in the banking system’s NPL coverage ratio at 92.3%. The banking industry continued to be well-capitalized as the capital adequacy ratio remained way above the 10% regulatory threshold of the BSP and the 8% minimum requirement by international standards.