Published on October 17, 2022
The Philippine economy expanded by 5.6% in 2021 after contracting by 9.6% in 2020. In the 1st half of 2022, the economy grew by 7.8%. With mobility at pre-pandemic levels, economic activity has increased significantly so far this year. Service-oriented and high contact industries have benefitted the most from this. From 70% in the 1st quarter, the economic output of these industries is now 72% of pre-pandemic level. Consequently, the country’s GDP is now 1% below 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 9.3% in 1H 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 0.2% in 1H 2022. Meanwhile, the industry sector continued to post strong growth at 8.3% amid the strong demand for manufactured goods, the recovery of construction, and the surge in metal prices. Construction is now 88% 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 8.7%. 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 3.9% in 2Q 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. This year, inflation has gone up further with oil as the main driver. Average inflation for the year is expected to settle at 5.5%. 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.
The information contained herein is published by the Bank of the Philippine Islands (or the “Unibank”). It is based on information obtained from sources considered to be reliable, but the Unibank does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any purpose. All the charts and graphs are taken from publicly available sources or derived from proprietary data. Expressed opinions may be subject to change without prior notice. Any recommendation contained herein does not pertain to any specific investment objectives, financial situation and the particular needs of any addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees who should obtain separate legal or financial advice. The Unibank, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Unibank or any other person has been advised of the possibility thereof. The information herein is not to be construed as a solicitation to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Unibank and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.