GDP grows faster than expected in Q3

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The Philippines’ gross domestic product (GDP) grew by 7.1% in the third quarter despite lockdown restrictions. — PHILIPPINE STAR/ MICHAEL VARCAS

By Jenina P. Ibanez, Senior Reporter

THE PHILIPPINE economy grew faster than expected in the third quarter, putting it on track to meet the upper end of the government’s full-year growth target and return to pre-pandemic level as early as the first quarter of 2022.

Gross domestic product (GDP) went up by an annual 7.1% in the quarter ending September, higher than the median growth estimate of 4.7% in a BusinessWorld poll conducted last week and a turnaround from the 11.6% contraction seen in the third quarter of 2020.

However, this was slower than the revised 12% growth in the second quarter as the government placed Metro Manila under an enhanced community quarantine (ECQ) for two weeks in August to curb a Delta-driven surge in coronavirus cases.

GDP expanded by a seasonally adjusted 3.8% quarter on quarter, after the 1.4% decline in the second quarter.

“We contained the Delta variant and sustained our economic expansion even as stringent quarantines were in place,” Socioeconomic Planning Secretary Karl Kendrick T. Chua said during a press briefing.

By expenditure, household spending — which accounts for around three-fourths of GDP — rose 7.1% in the third quarter, compared with 7.3% in the second quarter and the -9.2% in the third quarter of 2020.

“This strong rebound points to improving consumer confidence. We expect this to be sustained in the fourth quarter given more relaxed restrictions and a higher vaccination rate,” Mr. Chua said.

He noted the economy is now on track to reach the high end of downgraded 4-5% growth target. “As long as there is no unexpected new risk, like a stronger variant or a global surge, then I think, we are clearly on track to a strong recovery,” he said.

With year-to-date growth of 4.9%, the Philippine economy would have to expand by 1.7% in the fourth quarter to meet the lower end of the revised government target, while it would need to grow 5.3% to reach the higher end of the goal.

“To get to pre-pandemic nominal GDP level, it will be certainly in 2022, even as early as the first quarter,” Mr. Chua said.

PSA data showed the investment component, which is represented in the data as capital formation, expanded by an annual 22% in the third quarter, slowing from the 80.3% rise in the second quarter this year, but a reversal from 39.5% drop in the same quarter a year ago.

External trade showed growth, albeit at a slower pace from the previous quarter. Exports of goods and services went up 9% year on year, lower than the 27.8% growth in the previous three-month period. Imports jumped just 13.2% after the 39.8% growth in the second quarter.

Government spending increased by 13.6% in the third quarter, higher than the 5.8% growth in the same period last year. Government spending had declined by 4.2% in the second quarter this year — the first time since the 2.1% fall in the first quarter of 2017.

The industry sector posted 7.9% growth in period ending September, slower than the 21% in the previous three months and reversing the -17.6% a year ago.

Meanwhile, services went up by 8.2% but easing from the 9.8% growth in the second quarter, but a turnaround from the -10.6% a year ago.

Agriculture, forestry, and fishing shrank by 1.7% after inching up 0.02% in the previous quarter and 1.2% in the same period last year.

Accounting for seasonal factors, industry and agriculture declined by 0.3% and 0.7% in the third quarter, respectively. In contrast, services increased by 6.6%.

OUTLOOK
After the release of third-quarter GDP data, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the central bank will “continue to be patient with its accommodative monetary policy stance to support the economy’s full recovery.”

The Monetary Board is scheduled to hold a policy-setting meeting on Nov. 18.

JPMorgan Chase Bank N.A. Singapore Branch Economist Nur Raisah Rasid said the BSP will likely maintain its policy settings for now, “with a preference to delay monetary policy tightening to support recovery. He added policy normalization is likely in early 2023.

Alex Holmes, economist at Capital Economics, said economic recovery is coming from a “very low base – GDP was still around 6% below its pre-crisis level and 15% behind its pre-crisis trend in Q3.”

“A large negative output gap will remain for a long time yet. That will keep a lid on underlying price pressures and means that the central bank is unlikely to begin tightening policy until 2023,” he said.

Analysts are expecting the economy to continue its recovery in the fourth quarter, but warned of dampened household savings and the risk of another wave of COVID-19 cases.

ANZ Research Economist Debalika Sarkar and Chief Economist for Southeast Asia and India Sanjay Mathur said a steady drop in daily new COVID-19 infection rates and a pick up in the vaccination rate could support economic recovery.

“Even so, we are not overly optimistic on the magnitude of the recovery given the still high un/underemployment rate and constricted household savings,” they said.

Real investments could also continue to recover as more firms adjust to the reopening of the economy, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

“However, the huge downside is still the potential surge of cases in 2022 due to the increasing movement of people with the upcoming holiday season and election-related and campaign activities. Converging of more people is what COVID-19 likes so it can spread,” he said.

Makoto Tsuchiya, the Philippines economist for Oxford Economics, said he expects recovery to continue in the fourth quarter and to become more broad-based next year.

“Despite headwinds from slower China growth, we expect robust foreign demand to support exports growth. That said, low vaccination rate as well as prolonged global supply disruptions are downside risks to our outlook,” he said.

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