Corporate Watch
By Amelia H.C. Ylagan
On Monday last week, 15 economists polled by BusinessWorld — 11 from banks and financial institutions and four from the academe — were sure gross domestic product (GDP) growth in the second quarter (April to June) would have leaped to 5.9% from the nasty fall in the first quarter to 5.6% (the lowest in four years) after the hopeful 6.3% quarter-growth at year end 2018. Perhaps they were encouraged by Secretary of Socio-Economic Planning Ernesto M. Pernia’s assurance last June that though the second-quarter growth will “not be as strong as the third quarter would be,” a 6.5% GDP growth for the year would be “attainable.”
On Thursday the Philippine Statistics Authority (PSA) dropped a bombshell: GDP grew by only 5.5% last quarter, slower than the 5.6% in the first quarter and 6.2% (corrected) in the second quarter of 2018. This averages GDP growth at 5.5% for the first semester, slower than the 6.3% in 2018’s first half and the slowest expansion since the 5.1% recorded in the first quarter of 2015. In the same announcement, Mr. Pernia said that in order to reach the low end of the government’s 6-7% growth target, the economy would have to grow by an average of at least 6.4% this second semester.
Mr. Pernia immediately explained that the weaker-than-expected second-quarter economic performance reflected the “continuing effect” of the delay in enactment of the P3.662-trillion 2019 national budget, coupled with the March 29 to May 12 ban on new public works ahead of the May 13 mid-term elections. It will be noted that the 2019 budget would have been P3,757.3 trillion, from which P95.3 billion was slashed, in the heated controversies over budget insertions that delayed enactment in time for the start of the fiscal year. But nevertheless, the government operated on a reenacted 2018 budget from January to April 15, when President Rodrigo R. Duterte signed the 2019 national budget into law. The Department of Budget Management (DBM) said in a press release on Thursday that it had released P3.263 trillion, or 89.1%, of the delayed budget.
“Based on our estimates, if we had spent according to the fiscal program, growth would have been at least one percentage point higher (for the first two quarters),” National Economic Development Authority Undersecretary Rosemarie G. Edillon said in a Q&A with the media at Thursday’s slew of explanatory briefings. Yet the PSA reports that government spending was at 6.9% in the April-June period, decelerating from the growth of 7.4% the previous quarter and 11.9% last year.
GDP is computed using the formula: GDP = C + G + I + NX, or consumption + government spending + investment + net exports. Consumption slowed, growing only by 5.6% during the second quarter from the first quarter’s 6.1% and last year’s 6%. Government spending decelerated, as discussed. Investments declined by 8.5%, compared to the expansion of 8% and 20% in the first quarter of 2019 and second quarter of 2018, respectively. Exports of goods and services slowed to 4.4% in the second quarter from 14.7% in the same period last year, while imports stayed in the vicinity of last year’s 21%. With all variables slowing, naturally GDP growth will be down, and probably keep going down some more along the slippery downward trend.
Hours after the PSA reported that the economy grew at the weakest pace in four years in the second quarter, and two days after it said that July inflation was the slowest in two and a half years, the Bangko Sentral ng Pilipinas (BSP) quickly cut benchmark rates by a quarter percentage point, bringing the overnight repurchase rate to 4.25% and the overnight deposit and lending rates to 3.75% and 4.75% respectively, BusinessWorld reported. Five rate increases to hold down inflation in 2018 had also consequently discouraged investments and discouraged borrowing for consumption. BSP Governor Benjamin E. Diokno (who was former Department of Budget and Management Secretary) was earlier quoted by Bloomberg on Aug. 5 that he sees a 50-basis points cut for the rest of the year. “Inflation remains likely to stay within the inflation rates target of 2%-4% for 2019 to 2021,” Mr. Diokno announced to the press.
That same Friday, Presidential Spokesman Salvador S. Panelo came on national television assuring all that, “While growth has slowed down in the second quarter of this year, the Office of the President has been assured by our economic managers that this is simply a temporary setback.” The 2020 national budget is being rushed for approval, even this early.
So, is it still true that “The Philippines will continue to be the fastest-growing economy in the Association of Southeast Asian Nations (ASEAN), despite some stabilization of investment growth,” according to the World Bank in its January 2018 Global Economic Prospects report?
That may not be true anymore, today. Based on ASEAN GDP growth of 10 member-countries (extrapolated from Statista.com, Aug 9, 2019), the Philippines is down to 8th of 10 countries in terms of GDP increase from 2017 to 2018. Malaysia grew 12.6% to a 2018 GDP of $354.35 billion; Vietnam grew 9.47% to $241.27 billion; and even poor (in terms of GDP) Cambodia grew 10.3% to $24.52 billion. The Philippine’s 5.46% growth (unadjusted) brought GDP to $330.85 billion at end 2018, just for rough demonstration and raw comparison.
But the more significant statistics tell of how GDP growth has improved the welfare of society. In GDP and GDP per capita data according to International Monetary Fund’s April 2019 estimates, the ASEAN average for GDP per capita projected for 2019 is $4,747. Singapore tops all with $65,627 GDP per capita; second is Brunei with $30,290, next is Malaysia with $11,385; and Thailand with $7,607, Indonesia with $4,123, before it is the Philippines with $3,280 GDP per capita.
Analytical data of tradingeconomics.com shows an average 1.73% growth in Philippine GDP per capita for the four years 2014-2017, when GDP average growth for those years was at least 3.63%. That would mean that the quality of life for Filipinos had improved only by roughly half of what the improvement in GDP growth should have given them. But the dismal GDP per capita does not even tell the true story of the trickle down of GDP to the more needy. The Gini coefficient that has hovered around 40% (the 1986-2014 gap between rich and poor) reveals that as at 2015, the richest 10% hold 31.30% of GDP, while the poorest 10% make do with 2.7% left for them. Increasing the poverty band at an estimated actual 20% would still show a niggardly share of 6.6% of national wealth, with the 20% richest grabbing 47.3% of GDP.
But, as government regulators and economic planners would say, there must be sacrifices made in the name of development. Thus the rush for the TRAIN/TRABAHO tax and incentives reform program which will pump prime the economy. Under its P8.44-trillion 2017-2022 “Build, Build, Build” program, the government aims to jack up its spending on infrastructure alone to P1.899 trillion, equivalent to 7.45% of GNP by the time President Rodrigo Duterte ends his term in 2022 according to a philstar.com report from Dec. 20, 2017.
Just don’t let the Filipino poor subsidize the bounty of the entitled rich, in the obsession with development and the honorific GDP growth.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
