“After beating their growth target for 2022, the Philippine economic team headed by Secretary of Finance Diokno pegged the 2023 growth aspiration at 6.5%. Meanwhile, President Marcos believes early signs point to GDP growth settling even higher, at 7% YoY (year-on-year),” ING Bank analysts said in February (think.ing.com, Feb. 8, 2023). “However, given all the multiple challenges faced by the economy, we believe our 5% YoY growth forecast can be considered quite respectable against the backdrop of a likely global recession.”
A number of analysts expect 2023 growth to hit the lower end or the midpoint of the government target. “Of course, there are disagreements on what the growth rate will be this year,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla told legislators at an economic briefing. “The most pessimistic is the IMF (International Monetary Fund) at 5%. “Our own forecasts are quite consistent… we should be between 6% and 7% this year,” the central bank governor added, as quoted in manilatimes.net (March 3, 2023).
Why is there such jealous insistence by government on higher percentage-point differences from desk-top GDP analyses which are lower and perhaps more cautious? Surely, if there was an outside prognosis higher than that of government’s, the government projection would immediately adjust upwards. What is this thing called Gross Domestic Product, GDP, and what does it really show?
“GDP is how we rank countries and judge their performance. It is the denominator of choice. It determines how much a country can borrow and at what rate… Fast growth, as measured by GDP, has been considered a mark of success,” David Pilling of the Financial Times says (weforum.org, Jan. 17, 2018). “The GDP measures the monetary value of final goods and services — that is, those that are bought by the final user — produced in a country in a given period of time (say a quarter or a year). The international standard for measuring GDP is contained in the System of National Accounts, 1993, compiled by the International Monetary Fund, the European Commission, the Organization for Economic Cooperation and Development, the United Nations, and the World Bank (imf.org, “Gross Domestic Product: An Economy’s All”).”
Right there, we can see the main problem of the GDP growth marker — how to measure it. There is much subjectivity in the factors considered, as to the choices and weight, with omissions of unpaid labor and non-material benefits that contribute immensely to the quality of life. For the GDP is more than a wealth measure, it is a gauge of well-being. Standard of living and income distribution call for attention in the computations. The statistics are hard to hold down — is the data in the proper time frame? And the comparative foreign exchange conversion must standardize the GDP figure presented to the world (based on the US dollar).
And then there is this ubiquitous starting assumption in economic analysis: “All things being equal…” Ceteris paribus, meaning that all conditions remain the same so that the one variable in the mathematical equation can be analyzed towards a conclusion of its behavior. This would help the “apples to apples” cardinal rule in comparing growth rates “year-on-year,” for example:
GDP growth rate for 2021 was 5.70%, a 15.22% increase from 2020, according to macrotrends.net.
For 2020 it was -9.52%, a 15.64% decline from 2019.
For 2019 it was 6.12%, a 0.22% decline from 2018.
For 2018 it was 6.34%, a 0.59% decline from 2017.
And for 2022, GDP growth rate was 7.6%, an increase of 1.9% from 2021 (psa.gov.ph).
But “all things were NOT equal” through the last five years, not since 2020 when the COVID-19 pandemic entrenched itself and inflicted more than physical harm to the whole world. The constraints of survival supplanted the complacent “subject to all things being equal” and the wealth and assets of production were necessarily diverted to humanitarian urgencies.
The catastrophic decline of -9.52% in GDP growth in 2020 because of the first year of coping with COVID was exacerbated by natural catastrophes — the eruption of the Taal volcano in January, the Masbate earthquake in August, and three super-typhoons. The government had to buy expensive vaccines, set up medical facilities, arrange for relocation and rehab of disaster victims, give massive dole-outs to the people, and source food and basic needs (through import or by gathering donations).
The shutdowns and strict confinement and isolation imposed in COVID practically stilled the forces of production. Jobs declined. No work, no pay. And natural disasters caused loss of income from personal injury or death, and from building, lifeline, and infrastructure damage. The domestic consumer market shrank, and foreign direct investments shied away from the increased risks.
Analysts note that the easing of COVID restrictions during 2022 has allowed the rebound of household consumption spending, which helped to drive strong economic growth. Statistics showed that items with inflation above the central bank’s target tolerable inflation band of 2%-5% comprised a significant 72% of the Consumer Price Index (CPI) basket that determined inflation. “Revenge travel” and “Revenge spending” were the release from the shackling restrictions, and the self-gratifying alternatives for the lack of investment opportunities and the absurdly low bank savings rates. It is observed that “when inflation is increasing, people will spend more money because they know that it will be less valuable in the future. This causes further increases in GDP in the short term, bringing about further price increases,” according to Indiatimes.com (Aug. 8, 2010).
There are the sticky fuel price increases — bite the bullet, we need energy to run our cars, homes, and industry!
The peso depreciated so low during the three-year punishment of the pandemic. Is it our fault that the US dollar becomes more handsome as the most reliable run-to currency in this time of global economic crisis, and that the Philippine Peso must shrink in helpless comparison? What the heck, our government just needs to borrow more and import more for the unserved demand for goods and services in these trying times. “The Marcos administration inherited a hefty debt stock (P13.5 trillion) after the previous administration dealt with the economic fallout from the COVID-19 pandemic. Currently, the debt-to-GDP ratio stands at 63.5% and the fiscal consolidation plans call for this ratio to fall below 60% by 2025, three full years from now,” the ING Bank experts say (think.ing.com op. cit.). Let the next generation worry about foreign debt repayment.
“Inflation is high because it’s high and it will be higher,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla tersely said, as quoted by manilatimes.net (March 3, 2023). A few days later, the BSP clarified that inflation could have gone as high as 9.3% in February, with any easing from January’s 14-year high of 8.7% to be just a few points to 8.5%. The BSP had hiked rates by 350 bp in 2022 to ease price pressures. More BSP adjustments amid more inflation are expected.
National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said: “Inflation is the most crucial issue that the government must address.” The BSP expects inflation to average 6.1% this year, way above the 2% to 4% band set for 2022 (bworldonline.com, March 3, 2023). The Inter-agency Committee on Inflation and Market Outlook was set up last month to focus on taming inflation and working on raising the GDP growth marker for 2023 and the succeeding years.
To the government planners: Please think long-term, for the sake of the Filipino people, especially the younger generation.
Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.
