I wonder if it’s improved recently. I’ve been cursing at Facebook for years for holding hostage the ability to create WhatsApp group chats when I’ve declined to expose all of my contacts to it, but I just checked again and there’s a “Skip” button now that proceeds to the phone number UI.

That's purely down to iOS's contacts API not telling apps if they have full access to contacts if you refuse or supply a subset. Genuinely wish android's APIs worked the same way.

I currently store all my contacts in an app that doesn't expose them through the contacts API for this reason.

Same on Android.