‘Revenge spending’ boosted Q4 2021 growth, economists say

MANILA, Philippines—Mostly stuck at home for nearly two years, many well-off Filipino consumers embarked on what economists called “revenge spending” before 2021 ended, driving economic growth to another better-than-expected 7.7 percent year-on-year in the fourth quarter of last year.

The surge in consumer demand when more economic sectors were reopened late last year allowed gross domestic product (GDP) — the sum of goods and services produced in the country — to grow at an average 5.6 percent in 2021, slightly above the government’s 5 to 5.5 percent target.

Socioeconomic Planning Secretary Karl Kendrick Chua Chua said that despite the Omicron spike this month, the economy remained on track to hit the more ambitious 7 to 9 percent growth goal in 2022 as long as restrictions eased before this quarter ends.

“The door to our economic recovery is now fully open. The numbers for 2021 show an economy primed to break out,” said Chua, who heads the state planning agency National Economic and Development Authority (Neda).

“In the last quarter, we further recalibrated our strategies by shifting to the alert level system with granular lockdowns. Our efforts to safely reopen the economy allowed more Filipinos to work and earn their income,” Chua said, citing unemployment rate of 6.5 percent in November 2021, the lowest so far amid the prolonged pandemic.

“This led to a net employment creation of 2.9 million above pre-pandemic levels. Our strategies in 2021 have culminated in a full-year growth that exceeded targets and expectations,” Chua said.

National Statistician Dennis Mapa told a press briefing that full-year GDP in 2021 amounted to P19.39 trillion, up from P17.94 trillion in 2020, when the economy shrank by a record 9.6 percent — the Philippines’ worst post-World War 2 recession.

Last year’s total economic output came closer to the P19.52-trillion GDP in 2019, before the COVID-19 pandemic struck and left millions jobless at the height of the most stringent COVID-19 lockdowns imposed in 2020.

Chua expressed confidence that pre-pandemic GDP will be matched in early 2022, pointing to a “significant” decline in infections now following the Omicron outbreak.

If the downward trend continues, a shift to less stringent alert level 2 restrictions from the current level 3 in many areas, including Metro Manila and neighboring provinces accounting for half of the economy, would not only gain P3 billion per week but also pave the way for the lowest alert level 1.

Not even the onslaught of Super Typhoon “Odette” (international name: Rai) in six regions last December made a dent on GDP, with only 0.05 percentage point shed from the full-year growth by the estimated P33.4 billion in losses. Chua nonetheless said the government will finish the post-disaster needs assessment and regional recovery programs this month to fast-track rehabilitation in the areas flattened by Odette.

In a report, ING’s senior Philippine economist Nicholas Mapa said the fourth-quarter outturn was not only boosted by base effects — GDP contracted by 8.3 percent a year ago, but also “supercharged” by consumption, especially on leisure activities during the Christmas holidays.

The private sector and household consumption accounted for about three-fourths of the Philippine economy.

“Falling COVID-19 daily infections helped spur so-called revenge spending on recreation and culture (up 41.6 percent) and restaurants and hotels (21.9 percent) ahead of the holiday season,” Mapa said.

On a seasonally adjusted basis, fourth-quarter GDP grew 3.1 percent compared to third-quarter output.

“Household consumption was once again the key driver of economic growth, with spending rising 7.5 percent year-on-year, as fewer COVID-19 cases and an easing in restrictions led to an improvement in mobility and an increase in social spending,” Oxford Economics’ Philippine economist Makoto Tsuchiya said in a report.

Moving forward, Capital Economics Asia economist Alex Holmes said “growth over the rest of [this] year should be supported by a continued recovery in consumer spending.”

“There is also plenty of scope for investment to rebound further. Transport investment, in particular, remains very depressed. That should turn around as the movement of people again recovers close to pre-pandemic levels,” Holmes said in another report.

But Pantheon Macroeconomics senior Asia economist Miguel Chanco cautioned: “Don’t be fooled by the Philippines’ punchy fourth-quarter”. He said despite the hefty bounce in private consumption, other economic sectors “leave little to be desired.”

“The rest of the details are fairly disappointing across the board,” Chanco said.

“In particular, gross investment rose by just 3 percent quarter-on-quarter, on our adjustment, nowhere near enough to reverse the 12.3-percent collapse in the previous quarter,” Chanco said.

“This suggests to us that pre-election uncertainties already are settling in much earlier than we expected. We reckon that businesses will remain on the sidelines in the first half of this year, at least until the political dust settles. Elsewhere, government spending was little changed in the fourth quarter,” Chanco added.

But Mapa pointed to “broad-based” growth in the final quarter of 2021, citing that government expenditures and capital formation posted “respectable” year-on-year growth rates of 7.4 percent and 12.6 percent.

Tsuchiya noted that “public construction [continued] to lead the recovery amid the government’s effort to bolster economic recovery,” referring to the Duterte administration’s ambitious “Build, Build, Build” infrastructure program.

However, Holmes pointed out that robust growth rates were partly a result of the lows inflicted by the pandemic — “while year-on-year growth figures are set to remain high throughout 2022, that will mainly reflect how far the economy still has to recover.”

“GDP was still around 3-percent below its pre-crisis level and 14-percent behind its pre-crisis trend in the fourth quarter of 2021. That’s far weaker than anywhere else in the region. A large negative output gap will remain for a long time yet,” Holmes said.

Chua earlier on acknowledged the socioeconomic scarring to be inflicted by the COVID-19 pandemic—Neda’s estimates last year showed the staggering cost to the Philippine economy to reach P41.4 trillion in output losses until 2060 due to weaker private consumption, investments and government revenues coupled with workers’ lower productivity due to school closures and illness.

To address this, Chua said “we will continue to pursue structural reforms that will make the country more resilient against future crises and solidify our growth prospects.”

“We are optimistic that we will not only recover to the pre-pandemic level in 2022, but achieve the upper-middle income country status. We have put in place several game-changing reforms throughout the Duterte administration, and we will not slow down in these final months,” the Neda chief said.

TSB