Philippine economy exceeds expectations with above-target 2021 growth

MANILA, Philippines (Update 1, 1:48 p.m.) — The Philippine economy grew beyond the government’s expectations last year, with growth in the fourth quarter surprising on the upside despite the onslaught of Typhoon Odette and a prolonged pandemic.

Gross domestic product, the sum of all products and services created in an economy, grew 5.6% year-on-year in 2021, a dramatic turnaround from the historic 9.6% collapse recorded in 2020, the Philippine Statistics Authority reported Thursday.

Last year’s performance exceeded the government’s revised target of 5-5.5% growth.

During the final quarter of 2021, the economy surprisingly expanded 7.7% year-on-year, faster than downwardly revised 6.9% expansion posted in the preceding quarter despite the Philippines — which is still battling a prolonged pandemic — having experienced crisis after crisis when Typhoon “Odette” smashed the country days before Christmas day. Quarter-on-quarter, the economy grew 3.1%.

While last year’s growth figures got a lift from favorable base effects, PSA data showed the country’s major growth drivers are showing signs of recovery. Consumer spending, which historically accounts for over 70% of GDP, grew at an annualized rate of 4.2% last year, reversing the 7.9% contraction in 2020.

For Nicholas Mapa, senior economist at ING Bank in Manila, it was “revenge spending” during the Holiday season that gave the economy a last-minute boost.  “Falling Covid-19 daily infections helped spur so-called revenge spending on recreation & culture (41.6%) and restaurants & hotels (21.9%) ahead of the holiday season,” Mapa said in an e-mailed commentary.

Despite the impressive numbers, Alex Holmes, Asia economist for Capital Economics, believes there is still a lot of catching up to do. National Statistician Claire Dennis Mapa told reporters that the economy is still P131 billion short of where it was before the health crisis. But the government is confident the economy can return to its pre-pandemic shape this quarter once restrictions are relaxed.

At the same time, the government is optimistic that the country could finally reach the upper-middle income status this year, which was delayed by the pandemic.

“While an Omicron wave means the economy’s continued strong performance in Q4 is unlikely to be repeated this quarter, we think growth will pick up again before long,” Holmes said in a commentary.

“That said, the overall recovery has a long way to go, and the economy will remain in catch-up mode throughout 2022,” he added.

Metro Manila and some provinces have been placed under Alert Level 3 — the second strictest restriction there — until the end of the month after the Omicron variant drove daily infection numbers to new heights. But as the spike in cases begin to slow, Chua said the capital region is expected to transition to less stringent Alert Level 2 in the coming weeks.

This year, several economists believe it is the Bangko Sentral ng Pilipinas, and not the pandemic, that would shape the economy. It remains to be seen whether the economy is strong enough to get by with little help from the BSP. And the pressure to hike interest rates is building up for emerging market central banks amid hawkish signals from the US Federal Reserve.

Jun Neri, lead economist at Bank of the Philippine Islands, said the BSP is unlikely to begin tightening anytime soon.

“I doubt BSP will change their tone. They said they need to see four straight quarters of solid growth, we are only half way, which is why they hinted that no hike is likely in first half of 2020,” Neri said in a Viber message.

But ING Bank’s Mapa believes the BSP’s first post-pandemic rate hike may come earlier than initially thought. “An improving growth dynamic in 2022 alongside a decidedly hawkish Federal Reserve could see the BSP finally consider some form of policy normalization,” he said.

“Today’s upside surprise is the first leg of that decision and we expect BSP to prepare for a potential policy reversal by 2Q 2022,” he added.