Q1 growth at 8.3%, but full-year data seen lower

THE Duterte administration may have posted the highest growth rate in over three decades but economists are not optimistic that this performance is sustainable this year and in the medium term.

On Thursday, the Philippine Statistics Authority (PSA) announced that the economy posted a growth of 8.3 percent in the first quarter of 2022. This is the highest GDP growth since the fourth quarter of 1988 when GDP grew 12 percent.

However, economists believe that inflationary pressures which marked the skyrocketing oil prices in the second quarter, as well as the mobility restrictions that are still in place will prevent the country from posting higher growth after the first quarter.

“As long as the Covid alert level remains, the oil price settles at $100 per barrel and we don’t encounter logistical problems the West is going through, growth can be sustained at 6.3 percent—not 8 percent,” Ateneo de Manila University John Gokongwei School of Management Dean Luis F. Dumlao told BusinessMirror.

Dumlao said the country’s GDP growth may have already peaked in the first quarter of the year and will slow down starting in the second quarter when inflation pressures are greater.

University of Asia and the Pacific (UA&P) economist Cid L. Terosa said a shift to Alert Level 1 status in all provinces as well as allowing more schools to do face-to-face learning will increase consumption spending and accelerate GDP growth.

However, this will not lead to faster GDP growth in the second quarter and onward as external market pressures will make it difficult for the country to post a better economic performance.

“To sustain growth this year and in the medium term, we need to stabilize prices. This, however, will depend considerably on the resolution of geopolitical tension,” Terosa told this newspaper.

“Also, the new administration needs to calm market jitters with clearly laid out economic plans and to enhance and sustain economic recovery programs and measures,” he added.

Unionbank Chief economist Ruben Carlo O. Asuncion agreed with the gloomy outlook as they expect full-year GDP growth to settle at only 5.8 percent this year. If the situation improves, he said, the economy would post a slightly better growth of 6 percent.

Asuncion said sustaining growth will depend on the decision of the incoming administration, particularly in choosing to continue the good policies of the Duterte administration.

The choice of Cabinet members of presumptive president Ferdinand Marcos Jr. is crucial, he stressed. If the Cabinet is composed of “credible people” particularly the economic team, this is already a step in the right direction.

“If reforms are continued including the completion of the comprehensive tax reform program, this will further strengthen previous reforms and support further economic growth,” Asuncion told BusinessMirror.

Based on the outlook of the Bank of the Philippine Islands, the country’s GDP may post higher growth if a new Covid-19 does not materialize. They expect “high-contact services” to recover and boost economic growth.

BPI said the past five months have shown that consumers are more comfortable performing face-to-face economic transactions which would lead to a more brisk business environment.

Despite headwinds such as high inflation, rising interest rates and supply chain issues, BPI said the economy may still be able to post growth of 6 percent to 7.3 percent this year. The high end of their forecast is within the 7 to 9 percent target of the government.

“We expect a faster growth rate for investment spending given the rising demand from consumers. Businesses will likely invest more in the expansion of their capacity in order to meet the demand,” BPI said.

“We continue to expect a 7.3-percent full year growth for the economy this year given the latest GDP print, but this may go down to 6 percent depending on the behavior of oil prices for the rest of the year,” they added.

Reopening

In a briefing on Thursday, Socioeconomic Planning Secretary Karl Kendrick T. Chua said the single biggest contributor to the economy’s growth in the first quarter is the reopening of the economy.

With many more Filipinos willing to go out and report to their workplaces, more economic activities were made possible.

However, he recognized that the lockdown in January due to the Omicron surge and the absence of face-to-face classes prevented the economy from growing faster.

He noted that the economy lost P31 billion per week due to the Alert Level 3 status and another P12 billion per week due to the absence of face to face classes.

“We are a strong economy thanks to successive administration’s macro-fiscal prudence. That is really the insurance we bring into this very difficult time of Covid, the Russia-Ukraine conflict, China slowdown, and monetary normalization,” Chua said.

In terms of sustaining the growth momentum, Chua said, the outgoing administration has and will continue to implement measures to cushion the impact of these headwinds.

However, Chua said, the government has “exhausted” economic policies in terms of its responses. Policies that have helped the country in these trying times include cash transfers during the pandemic, as well as subsidies for those who have been negatively affected by the surge in oil prices.

Chua said the tax reform program and the passage of liberalization bills will allow the economy to continue growing. These will also increase the potential of the Philippine economy to weather future shocks.

“The bold policy reforms we instituted over the past six years will drive our economy forward with vigor. We have set the sails for the next administration to achieve rapid and more inclusive growth in 2022 and beyond,” Chua said. “The Philippine economy is a strong and steady ship ready for whatever storms that might lie ahead.”