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Last year, the Philippine economy outperformed government estimates, with growth in the fourth quarter surprising on the positive despite Typhoon Odette’s devastation and a prolonged epidemic.

The Philippine Statistics Authority said Thursday that GDP, or the total value of all goods and services produced in a country, increased by 5.6 percent year on year in 2021, a stunning turnaround from the historic 9.6 percent drop in 2020.

Last year’s results exceeded the government’s revised 5-5.5 percent growth objective.

Despite the Philippines — which is still battling a prolonged pandemic — having experienced crisis after crisis when Typhoon “Odette” smashed the country days before Christmas day, the economy grew 7.7% year-on-year in the fourth quarter of 2021, faster than the downwardly revised 6.9% expansion in the previous quarter. The economy rose by 3.1 percent quarter over quarter.

While the country’s primary economic drivers are showing signs of recovery, last year’s growth results were boosted by favorable base effects. Consumer expenditure, which accounts for more than 70% of GDP in the past, increased at an annualized rate of 4.2 percent last year, reversing a 7.9% contraction in 2020.

According to Nicholas Mapa, senior economist at ING Bank in Manila, the economy received a last-minute boost from “revenge spending” during the holiday season. “Falling Covid-19 daily infections contributed to so-called revenge spending on recreation & culture (41.6%) and restaurants & hotels (21.9%) ahead of the Christmas season,” Mapa wrote in an emailed remark.

Despite the promising results, Capital Economics Asia analyst Alex Holmes believes there is still more work to be done. The economy is still P131 billion shy of where it was before the health crisis, according to National Statistician Claire Dennis Mapa. However, the administration believes that if limitations are lifted, the economy will be able to recover to its pre-pandemic state this quarter.

At the same time, the government is optimistic that the country would achieve upper-middle-income status this year, despite the pandemic’s delay.

“While the economy’s ongoing good performance in Q4 is unlikely to be matched this quarter due to an Omicron wave, we believe growth will pick up again soon,” Holmes wrote in a commentary.

“However, the total recovery will take time, and the economy will remain in catch-up mode through 2022,” he warned.

After the Omicron strain drove daily infection counts to unprecedented heights, Metro Manila and some provinces were placed under Alert Level 3 — the second harshest restriction — until the end of the month. However, as the number of cases declines, Chua expects the capital region will be downgraded to Alert Level 2 in the coming weeks.

Several experts believe that the Bangko Sentral ng Pilipinas, rather than the pandemic, would define the economy this year. It remains to be seen whether the economy is robust enough to function without the BSP’s assistance. As a result of the US Federal Reserve’s hawkish signals, emerging market central banks are under increasing pressure to raise interest rates.

The Bank of the Philippine Islands’ lead economist, Jun Neri, believes the BSP will not begin tightening any time soon.

“I doubt BSP’s tone will alter. They stated they need four consecutive quarters of robust growth, and we’re only halfway there, so no rise is anticipated in the first half of 2020,” Neri said through Viber.

However, ING Bank’s Mapa believes the BSP’s first post-pandemic rate hike would occur sooner than expected. “In 2022, with an improving economic dynamic and a very hawkish Federal Reserve, the BSP may finally explore some form of policy normalization,” he said.

“Today’s positive surprise is the first leg of that choice,” he continued. “By 2Q 2022, we expect BSP to prepare for a potential policy reversal.”

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