Market Insights

Published on July 14, 2022

Economic Update

The Philippine economy expanded by 5.7% in 2021 after contracting by 9.6% in 2020. In the 1st quarter of 2022, the economy grew by 8.3%. The economy has been able to sustain its recovery momentum despite the headwinds both here and abroad. Mobility has recovered further especially in February and March when the COVID cases subsided. The movement of people in public places was back to pre-pandemic level in most of the 1st quarter as people were more confident to go out given the increasing vaccination rate of the country and the decline in COVID cases.  

Household consumption surged by 10.1% in the 1st quarter despite the omicron surge in January. Consumer confidence received a boost from vaccination and the lower mortality rate of omicron. It should be noted also that consumers spent aggressively despite the spike in oil prices and inflation in March. Pent up demand and revenge spending may have offset the impact of inflation. Meanwhile, investment spending posted another double-digit growth at 20%. But despite this, investment spending is still 18% below pre-pandemic level. Private construction continued its recovery with 21.7% growth in 1Q, while government construction fell by 4.9%. The recovery of consumer and investment spending has resulted to a substantial growth in imports at 15.6%. Also, strong demand for manufactured goods globally continues to fuel the importation of raw materials needed for production.

Certain industries continue to lag behind in terms of recovery, but they are improving nevertheless. Agriculture grew marginally by 0.2% as the industry continued to suffer from the impact of recent typhoons. Meanwhile, the industry sector continued to outpace the other sectors with 10.4% growth as demand for manufactured goods remained strong. The output of the manufacturing industry is now 1% above pre-pandemic level. Furthermore, the surge in global commodity prices has provided a boost to the mining industry. As for services, transport, accommodation, and restaurants had the fastest growth rate at around 23% given the low base from the previous year and the recovery of demand for high-contact services. Communication continues to be a leading industry given the increasing internet requirements of consumers and businesses. Real estate has recovered further especially the mall and hotel segments.

Inflation was faster in 2021 at 3.9% amid supply constraints and improving demand causing the Peso to depreciate. This year, inflation has gone up further to 6.1% with oil as the main driver. Looking ahead, consumer prices may increase at a faster pace this year due to existing and emerging risks. Oil prices have gone up significantly this year amid the conflict in Ukraine. Electricity cost may increase further as energy companies will likely pass on the cost to consumers, especially given the 275% year-on-year increase in coal prices. Meanwhile, the Peso is expected to weaken in the coming months. A weaker Peso will make imported items more expensive, especially oil and coal. With demand gradually returning to pre-pandemic level, the country’s current account deficit will likely widen and this will exert pressure on the Peso.

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