Caution still needed despite GDP growth

MANILA, Philippines — The Philippines should remain cautious even as it recorded  a stronger-than-expected growth last year as catch-up across several economic sectors remain and amid election-related uncertainties.

In a report, Pantheon Macroeconomics said Philippine economic momentum in the run-up to 2022 was solid, but the economy would continue to have a challenging trajectory toward recovery.

The economy grew by 5.6 percent in 2021 largely due to a strong fourth quarter expansion of  7.7 percent as mobility improved amid declining COVID cases.

“We urge extreme caution, though, in judging the fourth quarter GDP by its cover. Crucially, the headline growth rates lose much of their sheen when the known unknowns are stripped out,” Pantheon senior Asia economist Miguel Chanco said, adding that  “some of the key details in the fourth quarter leave a lot to be desired.”

In particular, fixed investment grew by only 1.2 percent quarter-on-quarter, with catch-up growth still substantial as this remains about 20 percent below the pre-pandemic peak.

Chanco noted that capital expenditure also appeared to have hit a premature ceiling, which suggests that election-related uncertainties have put the brakes on business spending, a quarter earlier than expected.

“Overall, the likely continued slowdown in investment growth this year is one of the main reasons why we expect the Philippine economy to underperform, growing by just 4.5 percent,” he said.

Such a forecast is way below the government target of seven to nine percent growth for 2022.

Against this backdrop, Pantheon maintained that the Bangko Sentral ng Pilipinas is unlikely to start normalizing policy this year, especially as inflation is expected to remain within the two to four percent target for the rest of 2022.

“The Bangko Sentral ng Pilipinas is unlikely to want to risk adding insult to injury by hiking rates at the same time as fiscal support is withdrawn,” Chanco said.

“Public finances are clearly overstretched. Government spending was the only major component in the fourth quarter to show no real quarterly growth,” he said.

Further, the think tank emphasized that the slowing pace of vaccination is a bigger long-term threat to consumption than Omicron.

Currently, only about 0.5 percent of the population is getting vaccinated daily, as compared to the one percent in mid-December.

While neighboring Southeast Asian economies like Vietnam and Thailand saw the same slowdown, these countries have 73 percent and 68 percent of their populations, respectively, have been fully vaccinated. This compares to only a little over 50 percent in the Philippines.

“The risk is that a huge part of the population could be constrained from daily economic activity for the foreseeable future,” Chanco said.