Analysts see above 6% Q1 GDP growth

FIRST-QUARTER Philippine economic growth likely topped 6 percent based on analysts’ forecasts, with a January surge in Covid-19 cases having been offset by factors such as a further relaxation of health restrictions, increased business confidence and election-related spending.

Projections for the January-March period ranged from 5.8 to 7.0 percent with a 6.3 percent average. While slower than the 7.8-percent expansion posted in the fourth quarter of 2021, the forecasts represent a rebound from the 3.9-percent contraction recorded in the first quarter of last year.

Official gross domestic growth (GDP) data will be released on Thursday, May 12, by the Philippine Statistics Authority.

Ahead of the announcement, economists from Rizal Commercial Banking Corp. (RCBC) and Security Bank Corp. (SBC) projected growth of 7.0 percent.

Low base effects, the easing of quarantine restrictions, and the resumption of foreign tourism and face-to-face schooling supported the recovery of pandemic-hit businesses, RCBC chief economist Michael Ricafort said.

The major drivers for the period included further economic reopening, increased government spending especially on infrastructure, election-related spending and more local and foreign investments, he added.

“Philippine GDP could grow by 6 percent-6.5 percent for 2022,” Ricafort continued, with “some potential upside surprises toward 7 percent levels” and a possible return to pre-pandemic levels before the end of the year.

SBC chief economist Robert Dan Roces, meanwhile, said domestic consumption remained the primary growth driver as eased quarantine curbs improved overall mobility. He also pointed to recent gains in the purchasing managers’ index as a good predictor of where the economy was headed.

He warned, however, that growth could be “slower than potential” moving forward due to higher inflation and the continuing pandemic.

“Downside risks in the quarters ahead remain to be the pandemic as well as elevated inflation. We do not anticipate a regression toward a negative path for growth, but rather slower than the potential on the back of inflation’s effect on domestic consumption,” Roces said.

Consumer prices have risen since the start of the year, with inflation hitting a three-year high of 4.9 percent in April — breaching the government’s 2.0- to 4.0-percent target for the year — as fuel prices surged due to Russia’s invasion of Ukraine.

Capital Economics, meanwhile, expects the economy to have grown by 6.7 percent in January-March.

“GDP is likely to have grown at a decent pace in Q1 (first quarter) despite a huge Omicron outbreak…,” it said in a report, noting that the hit on mobility had recovered sharply.

Unemployment also edged down in the first quarter and is now close to pre-pandemic levels, Capital Economics added. The jobless rate was a lower 5.8 percent in March compared to 6.4 percent in January and February.

“Over the coming quarters, the economy should continue to recover, with day-to-day disruption from the virus largely in the rear-view mirror. The opening of borders to tourists should provide an added tailwind, although any recovery of tourism is likely to be gradual,” the research consultancy said.

Covid-19 will continue to have an impact, however. “Even our forecast for above-trend growth of 7.5 percent this year is consistent with the economy being 13 percent smaller by the end of this year than if the pandemic had never happened,” Capital Economics pointed out.

Lower but still above 6.0-percent forecasts, meanwhile, were issued by ING Bank Manila and HSBC Global Research. Both predicted first-quarter growth of 6.1 percent.

ING senior economist Nicholas Mapa said the expansion would have been driven by household spending, with a quick drop in Covid-19 cases after January’s surge having allowed economic activity to improve.

“We also note that pre-election spending may have helped bolster the consumption figures further,” he added, predicting a return to pre-pandemic GDP growth by the second quarter.

HSBC Global Research, meanwhile, said Q1 growth was mainly due to better containment of the pandemic and improved vaccination rates. Private consumption also grew due to the growth in overseas worker remittances while infrastructure spending remained resilient, it added.

ANZ Research, for its part, offered a below 6.0-percent growth forecast of 5.8 percent, which it attributed to private consumption that was supported by labor market improvements, increased remittances and the reopening of borders.

It warned that consumption could “start to fizzle as a sharp rise in inflation erodes households’ purchasing power amid limited fiscal support.”

Carlo Asuncion, chief economist at Union Bank of the Philippines, offered the lowest GDP growth projection of 5.5 percent.

“This print is coming from a low base a year ago and so, at a seasonally adjusted clip, this growth forecast is robust enough. The reopening of the economy is seen to be a major driver amid the declining number of infections in previous months,” he said.

“With so much uncertainties all over, it is very difficult to determine if the government will hit its 2022 growth target. However we see at this point, 2022 GDP growth to settle between 5.8 percent,” Asuncion added.

The government is targeting 7.0- to 9.0-percent GDP growth this year.

Asuncion pointed to “external environment uncertainties” such as the “Ukraine-Russia war, China’s potential economic slowdown due to Covid-related lockdowns and the continuing saga of the hawkish US Fed trying to fight domestic elevated inflation.”

“All of these factors, we think, can weigh down on overall economic growth especially that the PH economy is yet to return to a pre-Covid level economic growth trajectory.”