Economy grows 8.3% in Q1

The Philippines managed to escape the repercussions of the Omicron surge at the start of the year as the economy grew 8.3 percent in the first quarter, way above market expectations, allowing the incoming administration to have a better foundation for sustained growth.

The economy is back on track two years into the pandemic following the government’s recalibrated measures to address surging COVID cases in January driven by the Omicron variant.

The economy, as measured by the gross domestic product (GDP) or the final goods and services produced in the country, jumped 8.3 percent in the January to March period, moving past market expectations of a 6.8 percent expansion. In the same period last year, the economy contracted 3.8 percent.

The latest GDP print puts the economy back to prepandemic levels. In nominal terms, GDP is at P4.9 trillion for the first quarter, 11 percent higher than pre-pandemic GDP of P4.43 trillion.

At a briefing yesterday, Socioeconomic Planning Secretary Karl Chua said the quick rebound from Omicron proved that the Philippines can live and deal with the virus.

Chua emphasized that strengthened health care capacity and an accelerated vaccination program enabled the country to contain the surge and safely reopen the economy.

The government did not resort to another wide-scale lockdown even when COVID cases were hitting record highs almost every day in January. For the first quarter, the Philippines was the fastest growing economy in the East Asia region.

“We have restored many jobs and livelihoods by shifting to a more endemic mindset, accelerating vaccination, and implementing granular lockdowns that only targeted the areas of highest risk while

allowing the majority of our people to work and earn a living,” Chua said.

For the first quarter, private consumption recovered 10.1 percent from the 4.8 percent drop last year, an indication of returning consumer confidence due to lesser restrictions and increased vaccine coverage. There has been a strong pickup in the transportation and recreation sectors.

Capital formation bounced back 20 percent while government spending slowed to 3.6 percent as public construction contracted by 4.9 percent, as the election spending ban began toward the end of the first quarter.

Other expenditure items, such as investments and external trade, also expanded by 20 percent and 10.3 percent, respectively.

All three major sectors recovered during the period led by industry at 10.4 percent followed by services at 8.6 percent. Agriculture only rebounded by a measly 0.2 percent.

Amid the stronger-than-expected first quarter performance, Chua said the National Economic and Development Authority will recommend to the Development Budget Coordination Committee the retention of the seven to nine percent target for the full year.

“Our strong economic performance moves us closer to achieving our growth target this year, but we will not rest on our laurels,” Chua said.

“We will continuously work hard to strengthen our domestic economy against heightened external risks such as the Russia-Ukraine conflict, China’s slowdown, and monetary normalization in the US,” he said.

Boon to next administration

ING Bank senior economist Nicholas Mapa emphasized that the first quarter performance points to a robust economy that would be inherited by the administration of presumptive president Ferdinand Marcos Jr.

Mapa noted that the second quarter GDP growth would likely show another healthy expansion delivered by election-related expenditure.

“On top of a robust economy, Marcos will enjoy a substantial amount of political capital to begin his term, as his Senate is set to secure 11 out of the 12 seats in the upper house,” Mapa said.

“A majority mandate on top of sizable political capital opens the door for opportunities for Marcos to implement substantial economic reforms early on in his six-year term,” he said.

Chua, for his part, maintained that bold policy reforms instituted during the Duterte administration would drive the economy forward with vigor.

“We have set the sails for the next administration to achieve rapid and more inclusive growth in 2022 and beyond,” Chua said.

“The Philippine economy is a strong and steady ship ready for whatever storms that might lie ahead,” he said.

Alex Holmes of Capital Economics said recovery may have gained momentum in recent months after the Omicron wave faded and restrictions were almost removed.

However, Holmes warned that new headwinds are building even if day-to-day disruption from COVID is fading.

These include soaring global commodity prices that eat into consumers’ purchasing power. Apart from local pump prices, food costs have also been on the rise.

“The upshot is that, as the boost from reopening fades and headwinds to consumption bite, the recovery is set to slow. The economy will likely stop catching up to its pre-crisis trajectory in the second half of the year,” Holmes said.

“Looking beyond the high growth figures, the overall economic recovery is, and will remain, very weak.

That is a key reason to expect the central bank to normalize policy only very gradually,” he said.

Mapa, on the other hand, said the robust economic recovery coupled with above-target inflation points to policy normalization from the central bank.

With GDP now back to pre-pandemic levels and with inflation accelerating, Mapa said the Bangko Sentral ng Pilipinas may hike policy rates as early as next week during the BSP policy meeting.

Resilient economy

Reacting to the latest growth figure, BSP Governor Benjamin Diokno said the central bank would continue to work with the national government to keep the economy on a robust growth trajectory and to address headwinds such as price pressures.

Diokno said the stronger-than-expected 8.3 percent GDP growth in the first quarter is further confirmation of the Philippine economy’s resilience.

“This was achieved by a whole-of-government approach, which required bold and decisive fiscal and monetary actions to remain in sync,” the BSP chief said.

On the monetary side, Diokno said the historic-low key policy rate has supported credit activities, while time-bound regulatory and operational relief measures allowed banks to continue performing the important role of financial intermediation throughout the pandemic.

The BSP Monetary Board slashed interest rates by 200 basis points in 2020 as part of its aggressive COVID-19 response measures, that brought benchmark interest rate at an all-time low of two percent.

“The robust growth performance of the economy in the first quarter, which beat analysts’ expectations, along with other favorable macroeconomic indicators, helps fulfill the BSP’s vision of a post-COVID Philippine economy that is stronger, more technologically advanced, more inclusive, and more sustainable,” Diokno added.

According to the BSP, it would continue to support the implementation of non-monetary measures by the government to address supplyside pressures, such as boosting importation of specific food items experiencing price spikes and direct subsidies to vulnerable sectors.

“For our part, the BSP stands ready to adjust our monetary policy settings, should we see material risk of these supply-side pressures spilling over to the demand side,” Diokno said.

Some economists are expecting the central bank’s Monetary Board to lift interest rates as early as May 19 despite the pronouncement made by Diokno that authorities would keep its accommodative monetary policy stance in May before a possible adjustment in June.