Philippines: GDP growth falls in the third quarter
November 9, 2021
According to a preliminary reading, GDP growth lost momentum in the third quarter, falling to 7.1% year-on-year from 12.0% in the second quarter, as surging Covid-19 infection rates prompted the introduction of restrictions. Nonetheless, Q3’s result substantially beat market expectations of a 3.8% expansion, amid the introduction of more flexible, small-scale lockdowns in September.
The slowdown was driven by weakening private consumption, fixed investment and exports. Private consumption increased 7.1% in the third quarter, which was below the second quarter's 7.3% expansion, while fixed investment growth slowed to 16.0% in Q3 from 39.8% in the previous quarter. Meanwhile, government consumption bounced back, growing 13.6% in Q3 (Q2: -4.2% yoy).
Exports of goods and services increased 9.0% on an annual basis in the third quarter, which was below the second quarter's 27.8% expansion. In addition, growth in imports of goods and services slowed to 13.2% in Q3 (Q2: +39.8% yoy). Thus, the external sector weighed on the headline reading, albeit to a lesser extent than in the prior quarter.
On a seasonally-adjusted quarter-on-quarter basis, economic growth rebounded in Q3, with GDP expanding a strong 3.8% and contrasting the previous period's 1.4% fall. The reading marked the fastest growth since Q3 2020.
Commenting on the outlook, Nomura’s Euben Paracuelles and Rangga Cipta remain skeptical that such momentum can be maintained:
“[The quarterly reading] was led by a surge in private consumption growth, which in turn was driven by household spending on transport and other discretionary items. We think this reflects pent-up demand after the country was going in and out of lockdowns in the past few months. However, we believe this is unsustainable given high unemployment rates. By sector, the vulnerable segments of the services sector also posted unusually high sequential growth that could easily reverse, in our view.”
Meanwhile, DBS’s Chua Han Teng highlights the importance of looser restrictions in the stronger than expected reading:
“Retail and recreation mobility has been recovering from August’s decline and bottom. It is positive that mobility has improved to its best levels for 2021. However, there is still room to go before returning to pre-pandemic levels, and catch up to Asian leaders, reflecting still harsh restrictions in the Philippines. In that regard, the authorities have shifted towards smaller scale lockdowns for high-risk areas and an alert level system to relax restrictions. Having piloted in Metro Manila (within NCR), the approach has been expanded beyond Metro Manila, starting from October 20 (Inquirer). Moreover, restrictions have been further relaxed in Metro Manila, starting from November 5 (CNN Philippines). This should result in higher mobility and more businesses reopening and operations at higher capacities.”
Author: Matt Cunningham, Economist