The Philippines emerged as one of the fastest-growing economies in the Asia-Pacific region this year, as the government’s easing of mobility restrictions saw thousands of businesses reopen and millions of Filipinos return to work.
Schools, restaurants, hotels and airlines have resumed operations, generating jobs for those who were displaced at the height of the pandemic in the past two years. “The Philippines continues to sustain an upbeat labor market, leading towards a strong economic recovery from the impact of COVID-19 pandemic,” the National Economic and Development Authority said during the release of the latest labor market report.
Data from the Philippine Statistics Authority showed that the unemployment rate dropped to 4.5 percent in October from 7.4 percent in the same month last year. This marked the lowest jobless rate recorded for all October rounds since 2019.
Employment rate increased to 95.5 percent, the highest since the start of the pandemic. This translated into an employment level of 47.1 million in October, or 3.3 million higher than in the same period last year. At this level, the Philippines is now the second largest labor market in Southeast Asia, next to Indonesia.
“The country’s sustained recovery of the labor market backs our confidence that our policies and interventions to reinvigorate our economy are working,” said NEDA Secretary Arsenio Balisacan said.
“Our move to finally open face-to-face classes at full capacity has paved the way for us to immediately address the learning losses from the pandemic—this is a precursor to a workforce that demonstrates competence and high productivity. Also, with children back in school, parents-at-home—especially mothers—are also able to pursue more income opportunities,” Balisacan said.
The country’s gross domestic product expanded 7.7 percent in the first three quarters, above the government’s target growth range of 6.5 percent to 7.5 percent for the year despite the elevated inflation and the subsequent interest rate adjustments by the Bangko Sentral ng Pilipinas.
The BSP raised its main policy rate by a total of 350 basis points from a record low of 2 percent last year to 5.5 percent this year to match the adjustment by the US Federal Reserve and prevent the further depreciation of the peso against the US dollar. The hike came amid the BSP’s effort to keep the peso from weakening too much, thus limiting imported inflation, according to Oxford Economics.
“We expect the BSP to hike by 25 bps in the first quarter of 2023 to reach its terminal rate of 5.75 percent in the current tightening cycle. That’s driven by our US team’s view of a hike of the same magnitude from the US Fed at its first meeting in 2023. We think the BSP will continue aiming to maintain the current interest rate differential with the US,” the London-based think tank said.
Despite the successive interest rate hikes, outstanding bank loans still grew by more than 13 percent in September, underscoring the growing demand of households and companies for credit to support recovery and expansion.
There are signs that inflation rate, which hit 8 percent in November, could subside in the coming months as global crude prices began to ebb. The peso also recovered from a record low of 59 against the US dollar in October to a range of 55 to 56 in December, mitigating the impact of imported inflation.
The Asian Development Bank, in its latest supplement to the Asian Development Outlook 2022, said the country’s GDP would expand 7.4 percent in 2022, faster than its September forecast of 6.5 percent. The economy has shown strong underlying growth momentum and resilience this year and is expected to continue in 2023, with GDP growth converging towards its longer term growth rate of about 6 percent, it said.
DBS Bank Ltd. of Singapore also sees the Philippines as the fastest growing economy in ASEAN over the next two years. It expects the Philippines to register a GDP growth of 7.4 percent in 2022 and 6.3 percent in 2023.
“Growth is on track to exceed the upper end of the government’s 6.5 to 7.5 percent forecast for the year. Economic opening from the pandemic has been a key support, despite multiple challenges from rising domestic inflation and interest rates, as well as global headwinds,” DBS said.
DBS also expects inflation rate to ease from an average of 5.6 percent in the first 11 months of 2022 to 4.4 percent in 2023.
Recent economic indicators support the positive outlook for the economy. Manila Electric Company, the country’s largest power retailer serving Metro Manila and parts of Central Luzon and Calabarzon, said demand for electricity was expected to rise by nearly 6 percent in 2022 from a year ago and exceed the 2019 pre-pandemic level by 4 percent, led by the recovery in the commercial and industrial sectors.
Real estate services provider Leechiu Property Consultants said in its mid-December report that office space demand reached 975,000 square meters so far this year, surpassing the combined demand of 389,000 sq. m. in 2020 and 540,000 sq. m. in 2021.
It said the information technology-business process management sector accounted for the lion’s share of 2022 take-up at 466,000 sq. m. despite the dominance of the hybrid set-up which allowed some employees to work from home and the rest, on site.
Meanwhile, merchandise exports rebounded by 20 percent in October to a record $7.7 billion, although imports were still higher at $11 billion because of the country’s strong demand for fuel, capital goods, food and raw materials.
Total exports in the first 10 months rose 6.3 percent to $66.01 billion, while imports increased 22.7 percent to $115.90 billion, resulting in a trade deficit of nearly $50 billion.
Revenge spending is also triggering the growth in imports. The Automotive Manufacturers of the Philippines Inc. and Truck Manufacturers Association said sales of vehicles, which are mostly imported, accelerated by 34.2 percent in November to 34,037 units from 26,456 in the same period last year, representing nine straight months of growth. This brought total sales in the first 11 months to 315,337 units, up by 31 percent from 240,742 vehicles sold in 2021.
As the economy regained the economic opportunities lost in the past two years, it is expected to join the ranks of upper middle-income economies in the next couple of years and finally attain the highly-coveted high-income status by 2047, according to NEDA estimates.