Economy beats forecasts, expands by 5.6% in 2021

MANILA, Philippines — The Philippine economy grew by 5.6 percent in 2021, beating market expectations, as consumption was fueled by revenge spending in the fourth quarter, prompting the government to maintain a return to pre-pandemic levels this year.

The economy, as measured by gross domestic product (GDP) or the final goods and services produced in the country, rose by 7.7 percent in the last quarter, topping analysts’ median estimate of 6.3 percent.

This brought the 2021 economic expansion to 5.6 percent, slightly above the government’s revised target of five to 5.5 percent.

The economy is coming off a 9.6 percent contraction in 2020, its worst performance since World War II.

Last year’s performance was significantly buoyed by the fourth quarter performance as private consumption accelerated amid the holiday season and better mobility following the sharp decline in COVID cases.

Private consumption recovered by 4.2 percent from the 7.9 percent drop in 2020, an indication of returning consumer confidence due to lesser restrictions and increased vaccine coverage. Government expenditure also expanded by seven percent.

De La Salle University economics professor Maria Ella Oplas said the significant rebound in the fourth quarter was expected given that Filipinos traditionally spend during the holiday season, with or without COVID.

“People had a lot of savings from the lockdown because they did not go out and spend. It’s like freedom for them to spend during the fourth quarter,” she said.

Apart from a favorable base, ING Bank senior economist Nicholas Mapa said that “revenge spending” helped economic activities to pick up.

Mapa said falling COVID-19 daily infections helped consumption on recreation and culture as well as restaurants and hotels especially as children were allowed to go out in the last quarter.

Investments also jumped by 19 percent on the back of growth in public construction as the government proceeded with the implementation of the “Build Build Build” infrastructure program.

Of the major sectors, services and industry managed to bounce back at 8.2 percent and 5.2 percent, respectively.

The services sector was driven by human health and social work activities, information and communication, and education. Industry, on the other hand, was led by construction and manufacturing.

Agriculture, however, went into contraction mode at 0.3 percent as livestock woes due to African swine fever persisted and as typhoons battered the sector.

In a briefing yesterday, Socioeconomic Planning Secretary Karl Chua said the sustained growth last year was driven by the management of risks such as targeting the areas with highest risk and allowing the rest of the economy to open.

“Our policies to move from a pandemic to a more endemic paradigm have led to broad-based expansions across almost all sectors, despite challenges brought about by the continued persistence of COVID-19, various levels of quarantines, and prevalence of natural disasters,” Chua said.

“The door to our economic recovery is now fully open. The strong 2021 performance shows us that we are on the correct path to a resilient recovery. The stage is now set for growth to accelerate in 2022,” he said.

Chua said the government is optimistic the Philippines will not only recover to the pre-pandemic level this year, but also achieve the upper-middle income country status.

In terms of nominal GDP, the Philippine economy is valued at P19.387 trillion, up from the 2020 level of P17.939 trillion. Pre-pandemic wise, GDP is just down by about 0.7 percent from the 2019 level of P19.518 trillion.

“We are very close to the pre-pandemic level at the end of 2021. If you look at the nominal levels, it’s almost the same. We are just a few hundred billions short so we are fully going to surpass it in 2022,” Chua said.

However, growth momentum is already expected to hit a snag in the first quarter due to the Omicron variant resulting in record-high daily COVID-19 infections.

Still, Mapa noted that a decent recovery is still possible, even more so with the elections in May likely to provide a boost to overall economic activity.

But Alex Holmes of Capital Economics maintained that overall recovery still has a long way to go and that the economy would remain in catch-up mode throughout 2022.

Holmes said recovery is likely to have been thrown off course again. But tentative signs that the outbreak has passed its peak have been observed.

“The economic impact of the latest wave should be relatively mild and brief. We expect GDP to be flat over the first quarter as a whole before returning to growth next quarter,” Holmes said.

“Growth over the rest of the year should be supported by a continued recovery in consumer spending. There is also plenty of scope for investment to rebound further. Transport investment in particular remains very depressed. That should turnaround as the movement of people again recovers close to pre-pandemic levels,” he said.

Research and advocacy group IBON Foundation, on the other hand, argued that the Duterte administration should not pat itself on the back for an economic performance that largely came from easing lockdowns that should not have been there to begin with if only the right public health measures were spent on.

IBON executive director Sonny Africa said the current rapid growth, which is mostly because of severe contractions in the past year, is likely short-lived and will start to fade after the first quarter.

“Filipinos are also not really feeling gains from that growth, the Philippines has the highest unemployment rate and inflation in Southeast Asia,” he said.

GDP was still around three percent below its pre-crisis level and 14 percent behind its pre-crisis trend in the fourth quarter and that is actually far weaker than anywhere else in the region.

Holmes said a large negative output gap will remain for a long time yet that will keep a lid on underlying price pressures.

To solidify growth prospects for 2022, Chua said the government will continue to pursue structural reforms that will allow better recovery even with a few months left in the administration’s term.

Chua reiterated the urgent need to finalize the bicameral conference approval and passage of the Amendments to the Public Service Act before Congress adjourns next month.

He said opening up key sectors to foreign investments subject to necessary safeguards will create more meaningful employment opportunities, enhance innovation, lower prices, and improve the quality of goods and services.

The economic team is also supporting the proposed livestock development bill to help improve the efficiency and competitiveness of the whole value chain for the livestock, poultry, and dairy sectors.

Chua said there is also a need to improve productivity and innovate to ensure that development goals are inclusive and sustainable.

“We remain committed to rebuilding a stronger economy and delivering on our promise to provide a comfortable life for everyone,” he said. – Elijah Rosales