Philippine growth best since 1976

THE PHILIPPINES weathered record inflation and interest rate increases last year by posting the fastest economic growth since 1976 — one of the strongest in Asia amid a dreary global outlook.

Economic output grew by 7.2% in the three months through December from a year earlier, according to the local statistics agency, bringing the full-year expansion to 7.6%. This was better than the 7.5% estimate by economists in a BusinessWorld poll.

Services and consumption boosted the economy last year as more businesses were allowed to fully reopen amid falling coronavirus infections.

The government expects the economy to continue growing, National Economic and Development Authority Secretary Arsenio M. Balisacan told a news briefing on Thursday.

Philippine stocks fell by 0.54% or 38.66 points to close at 7,042.70, while the peso ended at PHP 54.40 a dollar — the strongest in more than seven months.

“Our robust performance in the fourth quarter reflected strong domestic demand, with three-fourths contributed by household consumption and almost a fifth by investment,” Mr. Balisacan said.

Improving labor market conditions, increased tourism, “revenge” and holiday spending, and face-to-face classes bolstered growth last quarter, “further reflecting a solid rebound in consumer and investor confidence in the economy,” he added.

The country’s 2022 economic performance exceeded the government’s 6.5-7.5% goal and was faster than the 5.7% growth a year earlier. It was the quickest growth since 8.8% in 1976, according to government data.

Among Asian countries that released fourth-quarter gross domestic product (GDP) growth, the Philippines grew the fastest, followed by Vietnam at 5.9% and China at 2.9%, Mr. Balisacan said.

On a seasonally adjusted quarterly basis, GDP grew by 2.4% —  slower than 2.9% in the third quarter.

Inflation was one of the major challenges the economy faced last year, Mr. Balisacan said. “If not for the relatively high inflation and high prices, growth could have been higher by another one to two percentage points.”

Inflation quickened to a 14-year high of 8.1% in December, bringing the full-year average to 5.8%, which was also a 14-year record. December also marked the ninth month in a row that inflation breached the central bank’s 2-4% target.

Mr. Balisacan said the country faced supply chain disruptions, while the agriculture sector was battered by typhoons and animal diseases. “There are shortages both in the local economy and global market that led to an unprecedented increase in prices in agricultural products.”

But domestic consumption remained strong as the economy reopened. It expanded by 7% in the fourth quarter, slightly slower than 8% in the third quarter and 7.5% a year earlier. For the full year, household consumption rose by 8.3% from a year earlier.

Restaurant and hotel spending contributed the most to household expenditures, having gone up by 24.7% last quarter, National Statistician Dennis S. Mapa told the same briefing. “We saw in the fourth quarter a lot of Filipinos traveling, so more food was consumed outside the household.”

Government spending also rose by 3.3%, better than 0.8% in the third quarter but slower than 7.8% a year earlier. For the full year, state spending growth eased to 5% from 7.1% a year earlier.

Investors are “excited” about rising consumption in the Philippines, HSBC Philippines Chief Executive Sandeep Uppal told a Philippine economic briefing in London that was streamed live late Thursday.

Multinational companies look for opportunity, growth and returns, he said. “Multinationals look for production, rising consumption, rise of services. The Philippines grabs all three of them — manufacturing, consumption, services.”

Gross capital formation, the investment component of the economy, grew by 5.9% last quarter, though slower than 21.8% in the third quarter and 14.2% a year ago. Full-year growth was 16.8%, slower than 20.3% in 2021.

Exports jumped by 14.6% during the quarter, while imports grew by 5.9%. For 2022, exports expanded by 10.7%, while imports rose by 13.1% year on year.

On the production side, services and industry remained the main growth drivers.

“The growth in domestic demand was met by expansion in the service and industry sectors, with production in most subsectors back to their pre-pandemic levels,” Mr. Balisacan said.

Service growth was mainly driven by wholesale and retail trade, manufacturing and construction boosted industry growth, he added.

Services rose by 9.8% last quarter, while industry grew by 4.8%.

Agriculture, forestry and fishing contracted by 0.3% from a 2.1% expansion in the third quarter and 1.4% growth a year ago.

“Agricultural output slightly declined in the fourth quarter, highlighting the need to strengthen the sector’s productivity and resilience against natural disasters, animal diseases and climate change,” Mr. Balisacan said.

All sectors grew year on year. Services jumped by 9.2%, industry expanded by 6.7% and agriculture grew by 0.5%.

DIFFICULT YEAR AHEAD
Makoto Tsuchiya, an assistant economist at Oxford Economics, said in an e-mailed note fourth-quarter growth was more resilient than expected after household consumption and exports did better.

“So-called ‘revenge spending’ extended into the holiday season when face masks and limited capacity restrictions were no longer required,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mailed note. “Household spending grew in the face of multi-year high inflation, powered by yet another quarter of double-digit growth for restaurants and hotels.”

Despite better-than-expected 2022 growth, analysts said that the economy would face more headwinds this year amid an anticipated global slowdown.

The World Bank expects global growth to slow to 1.7% this year amid worsening financial conditions and the war in Ukraine. This could push the world into a global recession, it said.

“The slowdown is already showing itself amidst the expectation of a global recession resulting in weaker external demand, not to mention the potential drag of higher interest rates and elevated inflation,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. said in a Viber message.

“Although fourth-quarter GDP growth was impressive, we believe that momentum is starting to show signs of moderating amidst a challenging environment of still high inflation, elevated borrowing costs and tight fiscal space,” Mr. Mapa said.

Capital Economics Senior Asia Economist Gareth Leather said the Philippines faces a difficult year ahead.

A sharp reversal in pandemic-induced demand for electronics, which accounts for 40% of exports, and the slowing global economy would mean struggling exports in the next quarters, he said in an e-mailed note. “The consumer sector is also likely to struggle.”

“On the domestic front, the initial boost from pent-up demand will start to fade in the coming quarters,” Mr. Tsuchiya said. “Although easing, elevated inflation will continue to strain real purchasing power. Slowdown in the global economy will also weigh on goods exports, which in turn will weigh on investment appetite of export-oriented manufactures.”

Strong household consumption would be difficult to replicate this year, said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

“Partly because it was built on an untenable vertical spike in consumer credit growth, as well as a temporary boost to remittances in local-currency terms by the sharp sell-off in the peso,” he said in an e-mail note.

The government targets GDP to grow by 6-7% this year.