Market Insights

Published on February 17, 2023

Economic Update

The Philippine economy expanded by 5.7% in 2021 after contracting by 9.6% in 2020. In 2022, the economy grew by 7.6%. With mobility at pre-pandemic levels, economic activity has increased significantly in the past year. Consequently, the country’s GDP is now 3% above its level in 2019 on a rolling average basis. The amount of spending in the economy is now almost back to where it was two years ago. Aside from mobility and the return of confidence, the recently concluded elections was a huge growth driver during the first half. Several events with big crowds were held during this period and they provided a boost to household consumption.  

Household consumption growth was substantial at 8.3% in 2022 despite the surge in consumer prices. Pent up demand continued to fuel this growth while offsetting the impact of inflation. The low number of COVID cases during this period also led to a resurgence in confidence that drove spending. Meanwhile, it seems there was a shift in spending from essential items to non-essential or recreational items during the quarter. Also, there was a reallocation of spending from goods to services. Among the items under household consumption, the ones with the fastest growth rate were restaurant, hotels, recreation, and transport.

The agriculture sector continued to struggle amid long term productivity issues and the influx of imports from abroad, growing only by 0.5% in 2022. Meanwhile, the industry sector continued to post strong growth at 6.5% amid the strong demand for manufactured goods, the recovery of construction, and the surge in metal prices. Construction is now 92% of its pre-pandemic level amid the recovery of the private sector. As for services, the sector posted the biggest growth rate among the major sectors at 9.2%. The shift in consumer spending from goods to services is one of the factors that led to this. Transport, accommodation, and food services grew by 28% on average amid the recovery of demand for high-contact services. Meanwhile, real estate services grew by 5.3% in 2022 with the recovery of the mall and hotel segments.

Inflation was faster in 2021 at 3.9% amid supply constraints and improving demand causing the Peso to depreciate. In 2022, inflation went up further with oil as the main driver. Average inflation for the year settled at 5.8%. Looking ahead, inflation may stay at elevated levels in the coming months due to persistent risks like supply constraints. It may go down in 2023, but at a gradual pace as supply chains continue to adjust to the surge in demand amid the reopening of economies.

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