Consumption in Philippines

Philippines - Consumption

GDP rebounds in Q2 but low base effect flatters growth

The economy bounced back in the second quarter, with GDP expanding 11.8% in annual terms and contrasting Q1’s 3.9% decline. Q2’s rebound put an end to a five-quarter streak of falling output and came above market analysts’ expectations of a 10.0% increase. However, the reading was largely due to a low base effect.

Household spending grew 7.2% year-on-year in the second quarter, which marked the best result since Q3 2016 (Q1: -4.8% yoy). Moreover, fixed investment swung to expansion, rising 37.4% following the 18.0% decline tallied in the prior quarter. Meanwhile, government consumption slid 4.8%, logging the first contraction since Q3 2014 (Q1: +16.1% yoy).

On the external front, exports of goods and services skyrocketed 27.0% year-on-year in the second quarter, improving significantly from Q1’s 8.8% tumble. Similarly, imports of goods and services posted a stellar expansion of 37.8% in the second quarter (Q1: -7.0% yoy), further highlighting firming domestic demand.

Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, GDP returned to contraction in Q2, declining 1.3% following the 0.7% growth logged in the previous quarter, and marking the worst reading in a year.

Commenting on the growth outlook, Julia Goh and Loke Siew Ting, economists at United Overseas Bank, said:

“The Philippines is expected to face an economic setback in Q3 2021 as the resurging Covid-19 infections have forced the government to further extend stricter containment measures in the Manila capital region until 20 August. The slow pace of the vaccination rollout in the country might further delay the plan for relaxing lockdown restrictions and a full, safe reopening of the economy in H2 2021. These challenges are also compounded by renewed concerns about softer global growth momentum ahead. Hence, we maintain our 2021 full-year GDP growth forecast for the Philippines at 5.5%.”

Nicholas Mapa, senior economist at ING, noted that accommodative monetary and fiscal policies are likely to continue, also warning that the extension of mobility restrictions would weigh on the headline reading for 2021:

“Bangko Sentral ng Pilipinas has vowed to retain its accommodative monetary policy stance for as long as the economy is in “recovery mode” and we expect Governor Diokno to be on hold well into 2022. Fiscal stimulus may also be warranted to reverse the economic downturn but it appears that the authorities will cut back on spending to preserve debt metrics after the recent Fitch outlook revision. We will likely need to rework lower our full-year GDP forecast for 2021 especially if the planned two-week period for heightened mobility curbs is extended further.”

FocusEconomics Consensus Forecast panelists forecast GDP to increase 5.2% in 2021, which is down 0.4 percentage points from last month’s estimate. For 2022, they forecast economic growth of 7.1%.