GDP blues
The lockdowns, the rising COVID infections and the dramatic fall of our GDP must have made even our most optimistic economists go into depression. Can’t help feeling down with no relief in sight.
No wonder former finance secretary Bobby de Ocampo grabbed his guitar and decided he might as well burst into a song… an ode to falling GDP. Here is the link if you want to listen to his woes:
Can’t blame Sir Bobby for singing his GDP blues away. The Philippine Statistics Authority (PSA) reported that the economy shrank by 16.5 percent in the second quarter of the year, the steepest quarterly fall since the 10.7-percent contraction seen in the third quarter of 1983.
I remember that time in 1983. Ninoy Aquino was killed upon arrival at the airport. A cloud of uncertainty enveloped the country with so many political questions up in the air.
Those were really bad times. Marcos so devastated the economy we were unable to pay our national debts.
Today, our National Treasury may have been emptied by the COVID epidemic, but our Bangko Sentral has a record high international reserves of dollars… all $98 billion of it. Never mind that impressive amount has little to do with our economy.
Our gross international reserves were only boosted by the revaluation gains from the BSP’s gold holdings, the National Government’s foreign currency deposits (loan proceeds) with the BSP, as well as BSP’s income from investments abroad.
But the bad news about our economy was expected. After all, 75 percent of the country’s economic activities stopped with the first severe lockdown starting mid-March.
GDP data may mean nothing to most people. But other PSA data are felt by real people: 7.3 million Filipinos went unemployed in April, leading to an unemployment rate of 17.7 percent, the highest in 15 years.
The picture is bleaker from another measure. Almost half of all Filipino adults, or around 27.3 million individuals, are jobless according to the Social Weather Stations’ national mobile phone survey.
SWS said its survey, conducted from July 3 to 6, found adult joblessness at a record-high 45.5 percent of the adult labor force.
Another SWS survey found almost four out of five Filipinos, or 79 percent, said their quality-of-life got worse.
Economic Planning Secretary Karl Kendrick Chua estimates that the halt in economic activities resulting from the enhanced community quarantine (ECQ) in Metro Manila, Luzon and other parts of the country cost the economy about P1.5 trillion a month.
Gross domestic product (GDP) declined to P8.6 trillion during the second quarter from P9.3 trillion in the same period in 2019, according to National Statistician Dennis Mapa.
The sharp GDP fall in the second quarter – likely the fastest year-on-year drop since World War II – resulted in a technical recession, or two straight quarters of economic contraction.
The main contributors to the decline were: manufacturing, -21.3 percent; construction, -33.5 percent; and transportation and storage, -59.2 percent.
Among the major economic sectors, only agriculture, forestry, and fishing increased with 1.6 percent growth. Industry and services both decreased during the period by 22.9 percent and 15.8 percent, respectively.
On the expenditure side, major items that declined were: household final consumption expenditure (HFCE), 15.5 percent; gross capital formation (GCF), 53.5 percent; exports, 37 percent; and imports, 40 percent. On the other hand, government final consumption expenditure (GFCE) posted positive growth of 22.1 percent.
Net primary income (NPI) from the rest of the world and gross national income (GNI) both declined by 22 percent and 17 percent respectively.
Where do we go from here? It all depends on how well we deal with the virus. Right now, there is little ground for optimism. We can’t even seem to get our COVID statistics right, much less come up with a plan to deal with the virus. In the ASEAN region, we are ranked with the laggards.
Rabo Bank, in an economic research paper, pointed out that the success of fighting COVID-19 within ASEAN is quite mixed. They noted the current rising trend of cases in the Philippines.
“We estimate that most ASEAN countries will face deep recessions this year… However, for now, we think Vietnam and Indonesia might still see modest growth this year, while Thailand, Singapore, the Philippines and Malaysia will see a sharp contraction…
“Given that we expect global GDP to decline by almost three percent in 2020 and since tourism has ground to a halt, we expect Singapore and Vietnam to be hit hardest in terms of exports, and the Philippines and Thailand to be hit most in terms of tourism.
“We expect that international tourism will remain depressed until widespread vaccination is possible. Optimistic estimates put this at the second quarter of next year at the earliest. Even assuming the optimistic case, for Thailand and the Philippines, the slow recovery in tourism will hold back their economic recovery in 2021.
“The third channel through which COVID-19 will hurt ASEAN economies is domestic demand… Vietnam and the Philippines will take a relatively large hit, as the containment measures have been the strictest there.
“Of the two, we think the Philippines will be hit harder since Vietnam has been rather successful in containing the outbreak, while the Philippines has recently extended its lockdown…
“The sharp contraction in the Philippines of five percent this year (especially compared to the growth rate last year) reflects the strictness of its lockdowns and its high dependence on tourism…
“We do not expect the fiscal measures to support consumption very much, as uncertainty will drive consumers to save any windfall instead of spending it. The same applies to firms, which we think will try to save tax cuts and subsidies rather than spend on investments.”
With the GDP figure giving us the blues, maybe we should shift to GNH or gross national happiness. But SWS has recent data showing we also won’t do well on that measure. Just join Sir Bobby and sing the blues away.
Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco
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