Q1 GDP surpasses pre-pandemic level

PEOPLE cross Roxas Boulevard in Manila, May 1. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

By Abigail Marie P. Yraola, Researcher

THE PHILIPPINE ECONOMY expanded by a better-than-expected 8.3% in the first quarter, surpassing the pre-pandemic output level as household spending surged amid the easing of coronavirus curbs.

Preliminary data released by the Philippine Statistics Authority (PSA) showed gross domestic product (GDP) accelerated by 8.3% year on year in the January to March period, a turnaround from the 3.8% contraction in the same period last year. It was also faster than the revised 7.8% growth in the fourth quarter of 2021.

It also beat the median estimate of 6.7% in a BusinessWorld poll and was within the government’s 7-9% target.

The first-quarter growth was the highest in three quarters or since the 12.1% seen in the second quarter of 2021.

On a seasonally adjusted quarter-on-quarter basis, the country’s GDP went up by 1.9%.

“We have surpassed the pre-pandemic gross domestic product level,” Socioeconomic Planning Secretary Karl Kendrick T. Chua said at a press briefing on Thursday, adding the 8.3% expansion made the Philippines the fastest-growing economy in the East Asia Region in the first quarter.

At constant 2018 prices, the size of the Philippine economy in the first quarter was valued at P4.618 trillion, surpassing the P4.463 trillion in the first three months of 2019.

In current terms, the country’s economic output in the first three months of 2022 amounted to P4.930 trillion, higher than the P4.426 trillion in the first quarter of 2019.

“Growth in the first quarter of 2022 was broad based as most sectors rebounded from their contractions in the same period last year,” Mr. Chua said.

By expenditure share, household consumption grew 10.1% year on year in the first quarter, higher than the 7.5% in the previous quarter and a reversal of the 4.8% decline in the first three months of 2021. This accounted for about three-fourths of the country’s economic output and added 7.5 percentage points to the 8.3% GDP growth in the first quarter.

Government spending on the other hand, eased by 3.6% in the three months to March, lower than the 16.1% in the same period a year ago, due to the election spending ban.

Capital formation, the investment component of the economy, jumped by 20%, reversing the 13.9% decline last year.

Meanwhile, exports of goods and services went up by 10.3%, reversing the 8.4% fall last year. Similarly, imports rose by 15.6%, a turnaround from the 7.5% decline a year ago.

All major industries posted growth in the first quarter with agriculture, forestry and fishing with 0.2% (from -1.3% last year), industry with 10.4% (from -4.2%), and services with 8.6% (from -4%).

Net primary income from the rest of the world more than doubled (103.2%) in the first quarter, a reversal of the 75.9% year-on-year drop in 2021.

Gross national income, the sum of the nation’s GDP and net income received from overseas, climbed by 10.7% during the period, a turnaround from the 10.5% contraction a year ago.

“The Q1 GDP is largely driven by the change in our policy to fully open the economy,” Mr. Chua, who is also director-general of the National Economic and Development Authority (NEDA), said during the briefing.

Metro Manila and other parts of the country were put under the stricter Alert Level 3 in January to contain an Omicron-driven surge in COVID-19 infections. This was downgraded to the most lenient alert level in March that allowed businesses to operate at full capacity.

“There were speed bumps along the way, but our quick rebound from the Omicron surge showed that we have learned to live with the virus and shift from a pandemic to a more endemic mindset,” Finance Secretary Carlos G. Dominguez III said, separately.

Despite the strong first-quarter print, Mr. Chua said there will be no changes to the 7-9% full-year target.

“Our strong economic performance moves us closer to achieving our growth target of 7-9% this year, but we will not rest on our laurels. We will continuously work hard to strengthen our domestic economy against heightened external risks such as the Russia-Ukraine conflict, China’s slowdown, and monetary normalization in the United States,” Mr. Chua said.  

CONSUMPTION“The strength in consumption and investments was particularly palpable, given that there were renewed social restrictions in early 2022 to contain the sharp rise in COVID-19 cases,” ANZ Research said in a research note.

ANZ Research said the growth was also boosted by the strong recovery in the labor market, improving remittances, and the reopening of the international borders.

Security Bank Corp. Chief Economist Robert Dan J. Roces said the further easing of lockdown restrictions allowed economic activities to resume. Barring any fresh spikes in new cases, he expects the most lenient alert level to continue over the next quarters.

“Inflation is a headwind to growth, with oil and food prices in elevated levels this second quarter; surging inflation and robust growth print gives the (BSP) some elbow room to hike rates as early as the May 19 meeting,” Mr. Roces said in an e-mail.

Alex Holmes, an economist at Capital Economics, said the country should have gained further momentum in recent months but suspects that the strength of this recovery will begin to wane soon.

“However, while day-to-day disruption from COVID-19 is largely in the rear-view mirror, new headwinds are building. A jump in prices is eating into consumers’ real purchasing power. High global oil prices due to the war in Ukraine are feeding through to pump prices,” he said in a research note.

As the boost from reopening fades and headwinds to consumption bite, Mr. Holmes said the Philippines’ recovery will likely slow.

Despite the high year-on-year growth figures, Mr. Holmes said the country’s economic recovery “is, and will remain, very weak.”

“That is a key reason to expect the central bank to normalize policy only very gradually,” he said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said the latest GDP print provides the Bangko Sentral ng Pilipinas (BSP) more space to hike interest rates.

“With inflation becoming a significant threat to the recovery, even a mild monetary policy tightening can help temper price increases,” he said in a press release.

All eyes will be on the central bank as the Monetary Board meets on May 19 to review its policy settings.

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