My Cup of Liberty
By Bienvenido S. Oplas, Jr.
The Philippine Statistics Authority (PSA) released today two important reports, the 4th quarter — and hence, full year 2022 — GDP, and December — and hence, full year 2022 — trade data. These are the trends that we see.
1. GDP growth in 2022 is 7.6% led by investments and household consumption. On the demand side, household consumption has the biggest share, 73%, of GDP or gross domestic product (a monetary measure of the market value of all the final goods and services produced and sold in a specific time period), and it grew 8.3% last year. Investment has a 24% share of GDP and it grew 17%.
2. Government’s share in GDP is rising. In 2016-2017, the share of government consumption was only 11% of GDP — it went up to 15% in 2022. Since government spending is financed by taxes and borrowings, this means that current and future taxes and debt payment will increase, not flatline or decline.
3. The Services sector, led by trade and finance, is growing fast. On the supply side of GDP, the services sector is now 61% of GDP and it grew 9% last year — good! The industry sector and manufacturing have modest growth (see Table 1).
4. Agriculture’s share continued its decline. Its share is now below 9% of GDP and growth remains anemic at 0.5%. As discussed in this column last Monday, “Ten themes in development economics (and the Ruperto Alonzo lectures),” the growth of corporate farming is much faster than overall agriculture. What the sector needs is more corporate agribusiness, and more land consolidation to have economies of scale.
5. High expansion of imports despite the peso’s depreciation. Total merchandise or goods imports increased a great deal, from $117 billion in 2021 to $137 billion in 2022. The peso/US dollar average exchange rate last year was P54.48/$1 vs only P49.25/$1 in 2021. The Philippine economy was humming with both domestic and imported goods despite the higher exchange rate.
6. Exports have increased marginally, with the US and Japan as the top destinations. Merchandise exports in 2022 reached nearly $79 billion, with $23.4 billion going to the US and Japan alone. Germany remains the number one trade partner but its share to total exports and imports is declining.
7. Indonesia became a huge imports partner. Merchandise imports from Indonesia in 2021 were worth $8.45 billion, and jumped to $13.2 billion in 2022. Must be the higher value of coal imports, even if the quantity did not increase much.
8. Illicit trade in consumer items needs to be watched. For instance, the excise tax for legal cigarettes has increased from P55/pack in 2022 to P60/pack in 2023, and will further rise to P63/pack in 2024. Smuggled and illegal cigarettes, alcohol, other consumer goods will become cheaper options. Government revenues will suffer while certain government officials will amass wealth for themselves by allowing and facilitating the entry of illicit smuggled products.
9. The decelerated growth of 3% in China implies some migration of investments to ASEAN. Among the fastest-growing economies in the world in 2022, three were from the ASEAN — the Philippines, Malaysia, and Vietnam. The Philippines economic team — the departments of Finance and Budget and Management, the National Economic and Development Authority, and Bangko Sentral ng Pilipinas — will be busy entertaining more domestic and foreign investments expanding here.
10. Europeans suffer decelerated exports while East Asians kept their momentum. Expensive energy for Germany, the United Kingdom, France, etc. means less competitive merchandise exports for them. The Philippines needs to join the pack of export powerhouses of the ASEAN (see Table 3).
This column projects a 7-7.5% GDP growth in the first quarter of 2023. I will explain the basis for this projection in the coming weeks.
Bienvenido S. Oplas, Jr. is the president of Bienvenido Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.