2010 BDO Annual Report

We find ways
Review of 2010 Operations
Economic Environment
Posting Gains on Solid
Fundamentals
The Philippine economy recorded its best performance in over three decades with a
7.3% growth in gross domestic product (GDP) in 2010, surpassing the government’s
initial target of 5% to 6%.
This growth was bolstered by:
Market pundits said the strong
fundamentals of the Philippine economy
allowed it to expand and triumph over
a challenging external environment
caused by a weak US recovery, lingering
European sovereign debt crisis, rising
global inflation pressures, as well as
capital influx from the impact of US
Quantitative Easing (QE2), a monetary
policy used by some Central Banks to
stimulate the economy.
Consumption spending in 2010
rose 5.3 % on the back of low inflation
and interest rates, as well as higher
remittances from the Overseas Filipino
Workers (OFW) and steady revenues
from the Business Process Outsourcing
(BPO) sector. And with the renewed
investors’ confidence following the
election of Benigno “Noynoy” C.
Aquino III as the 15th President of the
Philippines, fixed investments increased
17% channeled largely to construction
and durable goods to meet growing
demand.
Election spending created demand
for campaign-related goods and
services, generating seasonal jobs and
extra incomes. Government spending
was frontloaded in the first half of the
year to rebuild the areas damaged by
typhoons Ondoy (“Ketsana”) and Pepeng
8
(“Parma”) that hit the country in late 2009.
Meanwhile, exports grew 26% in 2010
on inventory restocking and increased
external demand following the global
downturn in 2009.
The broad-based demand showed in
the favorable performance in industry
and services. Among the industry
sectors, manufacturing and mining were
clear winners with annual growth rates
of 12.3% and 18.4%, respectively, as these
benefited from the big export rebound
and favorable global prices. Meanwhile,
services grew by 7.1%, led by real estate,
trade, and private services. Only the farm
sector posted a decline due to the impact
of the El Nino.
INFLATION
Gross Domestic Product
1.1%
2009
7.3%
2010
From a high of 4.4% in April and May,
the headline inflation rate settled at 3%
in November and December on stable
food prices, electricity rate cuts, and price
rollbacks for socially sensitive products
kerosene and liquefied petroleum gas
or LPG. The peso appreciation also
tempered the impact of imported inflation
notwithstanding rising global commodity
price pressures. The average inflation rate
was 3.8% for 2010 versus 3.2% in 2009,
falling near the low end of the Bangko
Sentral’s 3.5%-5.5% inflation target.
FOREIGN EXCHANGE
The peso strengthened to P43.88/US$1
by year-end 2010 from the P46.36/US$1
end-of-period rate in 2009; while the
average foreign exchange rate rose 5.6%
to P45.11/US$1 in 2010 from P47.64/US$1
in 2009.
The peso’s strong performance was
boosted by the strong OFW remittances
(+8.2% year-on-year to US$18.8 billion);
higher BPO incomes (US$9.0 billion);
and increased export earnings (US$51.4
billion in 2010 vs. US$38.4 billion in 2009).
Further adding to dollar liquidity was
the surge in portfolio investments to
US$4.6 billion in 2010 from just US$388
million the previous year. Foreign capital
had shifted to emerging markets like the
Philippines that offered higher yields
compared to the near-zero interest
rate in the US following the US Fed’s