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Market Insights

Published on August 22, 2022


Economic Update




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 to 6.4% 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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