The Philippine economy grew by 11.8% in the second quarter of 2021, the fastest in over three decades. But economists warn this jump is all but a distortion following the severe impact of the coronavirus pandemic on businesses.
The latest figure reported by the Philippine Statistics Authority on Tuesday, August 10, is only the second double-digit gross domestic product (GDP) growth rate recorded since World War II.
The fastest growth rate was recorded in the fourth quarter of 1988 at 11.99%.
However, the economy is far from what it was like before the pandemic.
Economists call this the “base effect,” where the latest GDP figure is compared to a much lower figure from the previous year, effectively making an impression that economic recovery was significant.
Economist JC Punongbayan noted that the headline-grabbing second quarter growth for 2021 is a “mathematical illusion,” as GDP nosedived by 16.9% in the same period in 2020, marking the start of the Philippines’ recession.
In a briefing on Tuesday, National Statistician Dennis Mapa noted that GDP actually posted a negative quarter-on-quarter growth rate of -1.3% on a seasonally adjusted basis.
Per sector, industry and services grew by 20.8% and 9.6%, respectively. Meanwhile, agriculture, the bright spot in 2020, contracted by 0.1%.
By industry, accommodation and food service activities posted the highest growth rate with 53.4% in the second quarter. This was followed by other services (39.4%) and construction (25.7%).
All about the base?
While experts attributed the double-digit growth to base effects, Socioeconomic Planning Secretary Karl Chua said otherwise.
“The robust performance is driven by more than just base effects. It is the result of a better balance between addressing COVID-19 and the need to restore jobs and incomes of the people,” Chua said.
In a research note, ING Bank Manila senior economist Nicholas Mapa emphasized that mobility restrictions imposed last April resulted in a contraction on a quarter-to-quarter basis.
“With firms forced to operate at partial capacity, PMI (purchasing managers’ index) manufacturing activity dropped back into contraction for April and May while business sentiment turned less optimistic over growth prospects in 3Q and 2022,” Mapa said.
Mapa also noted that government expenditure was the lone sector to contract as authorities reined in spending to limit the impact on the country’s debt levels.
“The economic recovery will likely face a similar setback in 3Q as mobility restrictions returned in August with the country now facing a surge in COVID-19 infections due to the Delta variant,” he said.
In a tweet, Bank of the Philippine Islands chief economist Jun Neri highlighted that while second quarter growth beat expectations, “a lot of work” is still needed to keep up with Southeast Asian neighbors.
“Compared to peak, we are still 12% off while our neighbors, except Thailand, are likely to exceed 100% by end-2021. Much more work has to be done,” Neri said.
The government’s economic team is targeting GDP growth to hit between 6% and 7% for the entire 2021 and return to pre-pandemic levels by 2022.
Estimates of multilateral lenders and debt watchers, however, are not as optimistic. They pegged growth to be below 6%.
The PSA’s Mapa said the economy would need to grow at least 8% in the next two quarters to hit the lower end of the target.