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The latest GDP statistics for the second quarter of 2021 showed
that the Philippines economy grew by 11.8% year-on-year, after five
consecutive quarters of contraction. In the first quarter of 2021,
GDP had declined by 3.9% year-on-year, following a severe
contraction in GDP in the 2020 calendar year, when the Philippines
economy contracted by 9.6% year-on-year.
The 2020 economic contraction was the largest annual decline
ever recorded since National Accounts data series for the
Philippines commenced in 1946. Household final consumption
expenditure fell by 7.9% y/y in calendar 2020, while gross capital
formation contracted by 34.4% y/y. Some sectors of the economy
recorded severe declines in output, with the transport and storage
sector recording a 30.9% y/y decline in output in 2020, while
accommodation and food services output slumped by 45.4%.
Private consumption was a key driver for the return to positive
year-on-year growth in the second quarter of 2021, as household
final consumption expenditure rebounded by 7.2% year-on-year,
although government final expenditure fell by 4.9% y/y. Exports
grew by 27% y/y in the second quarter of 2021, helped by the
economic rebound in key global markets, including the US, EU and
China.
In June 2021, exports rose by 17.6% y/y, helped by a 12.3% y/y
increase in exports of electronic products. Electronic products
continued to be the country's top merchandise export in June 2021,
with total earnings of USD 3.72 billion, accounting for 57.1
percent of total exports in June.
In 2020, the current account surplus reached a record high of
USD 13 billion, or 3.6% of GDP, boosted by the sharp slump in
imports due to the severe contraction in domestic demand. Another
large current account surplus is expected in 2021. In June 2021,
the Philippines central bank, Bangko Sentral ng Pilipinas (BSP),
revised up its current account surplus projection for 2021 to USD
10 billion, or 2.5% of GDP.
An important stabilizing factor for the Philippines economy has
been overseas worker remittances by Filipinos working abroad, which
remained quite stable during 2020, down only 0.8% y/y, and
equivalent to around 10% of GDP. However, an estimated 400,000
Filipino workers were repatriated during 2020 as a result of job
losses in their host countries, raising concerns about the impact
on remittance flows during 2021. Remittances sent home by workers
are an important factor supporting domestic consumer spending in
the Philippines. However, despite concerns about job losses, recent
monthly data continues to show resilient remittance inflows, with
remittances by workers abroad up by 13.3% y/y in May 2021. In the
first five months of 2021, remittance flows rose by 6.6% y/y.
Manufacturing production contracted by 9.8% y/y in 2020,
reflecting significant disruption to manufacturing output during
the pandemic-related lockdown and restrictions on retail trading in
Q2 and Q3 2020. Economic conditions had gradually improved in the
fourth quarter of 2020 and during the first half of 2021, with
manufacturing output rising by 22.3% y/y in the second quarter of
2021. However, the recent severe escalation in the pandemic has
created renewed uncertainty about the momentum of economic recovery
in the remaining months of 2021.
The IHS Markit Philippines
Manufacturing PMI fell from 50.8 in June to 50.4 in July, still
registering slightly above the 50.0 no-change threshold that
separates expansion from contraction. This followed declines seen
in April and May, when escalating daily new cases had resulted in
protracted lockdown measures, impacting economic activity. The
protracted virus-related restrictions in the Philippines have
contributed to weak domestic demand and softer consumption spending
in July.
A combination of raw material shortages and pandemic-related
restrictions led to another marked lengthening of supplier lead
times in July. Vendor performance has now deteriorated in every
month since August 2019.
Progress of Vaccine Rollout
As a developing country with a population of 108 million, the
Philippines confronts significant challenges in vaccinating its
population with COVID-19 vaccines due to difficulties in obtaining
sufficient vaccine supplies, as well as the logistical problems of
implementing a large-scale vaccination rollout nationwide. The
COVID-19 vaccination program began on 1st March 2021, after the
arrival of shipments of China's Sinovac vaccine. The Philippines
has contracted to acquire 25 million doses of the Sinovac vaccine,
with an estimated 16.6 million doses already delivered and a
further 1 million doses provided as a gift by the Chinese
government. The Philippines is also due to receive 9.3 million
doses of the Oxford/AstraZeneca vaccine through the global COVAX
vaccine sharing initiative. So far 5.7 million doses of the
AstraZeneca vaccine had been delivered to the Philippines through
this COVAX facility by the mid-July 2021, including 1.1 million
doses donated by the Japanese government. The UK government has
also donated 415,000 doses of the AstraZeneca vaccine.
The COVAX facility has faced delays in receiving AstraZeneca
vaccine supplies from the Serum Institute of India, a key
manufacturer of the AstraZeneca vaccine. This is because India has
also faced a sharply accelerating COVID-19 wave similar to the
Philippines, and the Indian government has placed temporary
restrictions on export of COVID-19 vaccines in order to accelerate
the vaccination of the Indian population.
The Philippines government is negotiating with seven global
COVID-19 vaccine makers to secure sufficient supplies. A contract
for 13 million doses has been agreed with Moderna, with a further
contract for an additional 7 million doses also having been
subsequently negotiated, providing a total of 20 million Moderna
vaccine doses. Furthermore, the US Government announced on 30th
July that it was also donating 3 million doses of the Moderna
vaccine to the Philippines through the international COVAX
facility, with delivery having been completed on 3rd August. The US
government had earlier provided 3.2 million doses of the single
shot Johnson & Johnson vaccine to the Philippines in mid-July.
The Philippines also signed a contract for 40 million doses of the
Pfizer vaccine in June 2021.
The Philippines government had planned to vaccinate 70 million
persons by end-2021, with a total of 23.2 million doses having been
administered by late July 2021. An estimated 11.4% of the total
population had received first dose vaccinations by 5th August 2021,
with 9.8% of the population fully vaccinated. A key problem
confronting the Philippines, like many other developing countries,
is that it is relying on imported vaccine supplies and is therefore
vulnerable to supply disruptions due to "vaccine nationalism", as
some nations with vaccine production facilities prioritize supplies
to their own domestic populations due to the mounting human toll of
the pandemic.
Philippines Economic Outlook for 2021-22
While the Philippines economy is still expected to show a
positive growth rebound in 2021, the near-term outlook for the
Philippines economy has been dampened by the rising wave of new
COVID-19 cases since mid-March 2021. Although daily new cases
showed some decline during May and June, the impact of the Delta
variant has resulted in a renewed upturn in new cases during July
and early August. This is expected to constrain the pace of
economic recovery in the near-term, as strict pandemic control
measures have again been imposed in Metro Manila and other
surrounding areas badly impacted by the latest surge in pandemic
cases.
Vaccine rollout in the Philippines has also been constrained by
lack of sufficient supplies of imported vaccines. Consequently, the
pace of economic recovery in 2021 is likely to be more constrained
than previously expected, with renewed pandemic control measures
limiting the momentum of growth recovery in the near-term.
Consequently, GDP growth in 2021 is expected to be in the 5% to 6%
range.
The outlook for 2022 is positive, with the July IHS Markit
Philippines Manufacturing PMI survey showed that sentiment amongst
Philippines manufacturing firms regarding output expectations over
the next 12 months had improved to a four-month high. The gradual
progress of the COVID-19 vaccination program has underpinned hopes
of a return to normality over the next 12 months. Stronger GDP
growth of around 7.7% y/y is expected in 2022, as the pandemic is
gradually restrained by widening vaccine rollout in the
Philippines, resulting in more normal economic conditions.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
