Philippine Household Spending Accelerates Economic Recovery

(Bloomberg) -- The Philippines’ recovery gained traction in the third quarter on strong growth in household consumption and services, putting the economy on track to return to its pre-pandemic level earlier than expected.

Gross domestic product grew a seasonally adjusted 3.8% in July-September from the previous quarter, the statistics agency reported Tuesday, higher than all estimates in a Bloomberg survey of 13 economists. That compares to the 1.4% median growth estimate in the survey and a revised 1.4% contraction on a sequential basis in the second quarter. 

Compared to the previous year, GDP expanded 7.1% in the third quarter, slower than the revised 12% growth in April-June. Growth was driven primarily by household consumption, Economic Planning Secretary Karl Chua said in a briefing.

“So 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,” Chua said. “Our strategy is correct.”

The peso rose as much as 0.5% against the dollar in the spot market, while the benchmark Philippine Stock Exchange Index was up as much as 0.6%.

The economy had been expected to disappoint in the third quarter as daily infections rose to records and the capital region was placed under lockdown, pushing up the jobless rate. Restrictions have since been eased and movement in shops and workplaces has improved as infections ebb. 

What Bloomberg Economists Say...

“Stronger-than-expected growth underlines resilience to headwinds from another lockdown in Metro Manila and the country’s worst Covid-19 outbreak yet. The easing of those restrictions and a receding virus wave should lift growth further in the fourth quarter, especially given the high vaccination rate in the capital region.”

Justin Jimenez, Bloomberg Economics

Click here to read the full note

The quarterly performance all but ensures the economy will fulfill the government’s growth target of 4%-5% for the year, Chua said. The country now is set to return to its pre-pandemic size as early as the first quarter of next year, earlier than previously expected.

“Output is set to jump again in Q4 following a sharp drop in virus cases and the further easing of restrictions,” Alex Holmes, Asia economist at Capital Economics Ltd., wrote in a note. “That said, even after rapid growth in the second half of this year, the recovery will still have a long way to go, and the economy will still be in catch-up mode throughout 2022.”

Loose Policy

Even with a better growth outlook, Governor Benjamin Diokno has said the Bangko Sentral ng Pilipinas is prepared to keep monetary settings loose to boost the economy, which is expected to log one of the slowest recoveries in Asia. Policy makers are scheduled to set the key rate on Nov. 18. 

“Even if the economy is recovering, it’s still below potential output and thus will need help,” said Trinh Nguyen, senior emerging Asia economist at Natixis SA in Hong Kong. “We don’t think the BSP will raise rates on the back of this to shore up demand.”

More details from the briefing:

• On a seasonally adjusted basis, only services grew, expanding by 6.6% quarter-on-quarter
• Agriculture and industry sectors shrank by 0.7% and 0.3%, respectively, from the previous quarter
• Household consumption grew by 7.1% from a year earlier, accounting for 5.2 percentage points of overall GDP growth
• “Direction is upward” for household consumption in fourth quarter as children are now allowed to go to malls, restaurants

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