Market Insights

Published on August 27, 2021


Economic Update

The Philippine economy expanded by 11.8% in the 2nd quarter of 2021. On a year-to-date basis, the economy has grown by 3.7% so far this year.






Domestic demand has improved given the adjustments done by consumers and businesses. It seems the country is gradually learning how to live with the virus, thereby mitigating the losses caused by community quarantines. However, the economy is still far from restoring all the output it lost due to the pandemic. Even with the double-digit growth in 2Q, growth in the 1st semester of 2020 was only 3.7%, not enough to offset the 9.3% contraction in the same period last year.


Household consumption managed to grow by 7.2% despite the combination of elevated inflation and persistently high unemployment. Consumers continued to prioritize essential items in their spending, with food, housing, and utilities accounting for 53% of total consumer spending in the first half of the year vs. 45.5% in 2019. Meanwhile, the share of transport, restaurant, and hotels in total spending is still far from pre-pandemic level despite growing by double digits in 2Q.


Investment spending has also bounced back, growing by 75.5% in 2Q. However, the 2Q figure is only 85% of its level in 2Q 2019. Businesses are gradually ramping up their capital spending while remaining cautious. With consumer spending still below pre-pandemic level, the opportunity for business expansion is still limited. Both government and private sector construction expanded during the quarter, but the growth of government construction was faster. The government probably spent aggressively on infrastructure in 2Q ahead of the rainy season and election spending ban early next year. However, total government expenditure still declined by 4.9% due to base effects despite the increase in infrastructure spending.


Imports recorded a substantial increase, consistent with the recovery of domestic demand. As a result, the Peso has depreciated and is currently trading at the 50 level. On the other hand, exports have recovered as well with growth being driven the global demand for manufactured products particularly electronics. However, the lack of tourism receipts amid the travel restrictions has prevented exports from reaching fully recovery.


Agriculture contracted again in 2Q, with livestock as the biggest drag. The African Swine Fever continues to affect the pork industry, forcing the hog raisers to reduce their production. Meanwhile, both industry and services recorded substantial gains. Manufacturing was one of the biggest outperformers among the major industries given the strong demand for electronic products. Information and communication also had a good quarter with 14.2% growth as the pandemic accelerated the development of technologies and communication services.


Meanwhile, inflation slowed down from 4.1% in June to 4.0% in July. We continue to see upside risks that could keep inflation above 4% in the coming months. With the global price of oil at elevated levels, we expect utility costs to reflect this eventually. Electricity distribution companies have started to raise their rates and may continue to do so in the coming months. Aside from global oil prices, energy companies will likely incorporate the recent depreciation of the Peso.

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