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2014 economy vs. present DATA

What happened to the Philippine economy in 2014?

There is reason to expect sustained growth in 2015, with election spending starting even in 2015 (as
2016 involves the presidency)

Jose Ramon G. Albert

Published 10:00 AM, January 07, 2015

Updated 10:10 AM, January 07, 2015

With the onset of 2015, we have begun our habit of making New Year’s Resolutions, and of wondering
about what is in store for the rest of the New Year. The Social Weather Stations (SWS) reported last
month that seven out of ten Filipinos expected a happy Christmas, which, by far, appears to the best
outlook ever of the yuletide season in an entire decade.

Media organizations have also started to interview soothsayers to give their take on what the stars are
suggesting for 2015. International organizations and think tanks such as the Philippine Institute for
Development Studies (PIDS) will also soon release their respective outlooks on socio-economic
conditions.

This coming January 29th, the Philippine Statistics Authority (PSA) will release estimates of the fourth
quarter economic performance, as well as for the whole of 2014. Growth in the Gross Domestic Product
(GDP), and the major sectors, namely Agriculture, Industry and Services, provide concrete evidence of
what is to come for the economy, since the past carries information about where the future is likely to
be.

While GDP is not a perfect measure of economic performance, it continues to be the most widely
trusted economic indicator being the value of goods and services produced in an economy. Of course,
other statistics including a Gross National Happiness Index, and multidimensional measures of progress,
are being proposed but only GDP has undergone as much rigor, with the UN advocating for countries to
follow the System of National Accounts (SNA), especially the latest 2008 SNA, which the PSA has
adopted.

Last November, when the PSA released statistics on the third quarter economic performance, several
were disappointed that the third quarter performance was lower than what they expected, on account
of negative growth (-2.7%) in agriculture and a slowdown in the growth of services (5.4%), compared to
the previous year (7.7%).

Some also pointed to poor government’s spending, on account of the declaration of the
unconstitutionality of the Priority Development Assistance Fund (PDAF) and the Disbursement
Acceleration Program (DAP). While public administration and defense output, and government final
consumption expenditures considerably slowed down (see Figure 1), attributing the slowdown of the
economy to the PDAF and DAP issue is far too simplistic. Government contributes only about 10.5% of
total spending, and 4.7% of total output in the entire economy.

Figure 1. Growth (in Constant 2000 prices) of Public Administration & Defense (PAD) and Government
Final Consumption Expenditure (GFCE): 2009Q1 to 2014Q3

Source: National Income Accounts, PSA

Figure 1. Growth (in Constant 2000 prices) of Public Administration & Defense (PAD) and Government
Final Consumption Expenditure (GFCE): 2009Q1 to 2014Q3 Source: National Income Accounts, PSA

It must be remembered that 2013 was an election year, so election spending contributed to a high base
for 2013.

Everyone should recognize that a 5.3-percent growth for the third quarter is still quite impressive. Many
economies in Europe have not seen positive growth for quite a while. And what is remarkable is that the
Philippine economy has been having robust growth through the period when the global economy faced
many challenges.

Right direction

There is reason to expect sustained growth in 2015, with election spending starting even in 2015 (as
2016 involves the presidency). Government spending will help though it matters what government will
spend on. The decision to keep on increasing spending for infrastructures is a step in the right direction,
as this will spur more investments and jobs.
In a previous article on Rappler, I showed that the employment structure is shifting, with more
employment being created outside of agriculture and with the share of vulnerable employment
decreasing. As far as the economy is concerned, while personal consumption still continues to be the
bulk of spending, from 2000 to 2014, Figure 2 shows that the ratio of household final consumption
expenditure to total gross domestic expenditure (GDE) has been decreasing (although fourth quarters
tend to be upticks in recent years). Investment (as measured by fixed capital to GDE) is also on the rise,
especially in recent years.

The quality of economy growth thus appears to be healthy. Of course, it will take several more years,
perhaps two more honest presidents, for economic growth to be sustained and ultimately result in
substantial poverty reduction. We ought to be concerned about choosing for president in 2016 someone
who isn’t corrupt since as I pointed out that corruption harms development.

Figure 2. Ratios of Fixed Capital and Household Final Consumption Expenditure to Gross Domestic
Expenditures (GDE) in Constant 2000 Prices: 2000Q1 to 2014Q3

Source: National Income Accounts, PSA

Figure 2. Ratios of Fixed Capital and Household Final Consumption Expenditure to Gross Domestic
Expenditures (GDE) in Constant 2000 Prices: 2000Q1 to 2014Q3 Source: National Income Accounts, PSA

Figure 2. Ratios of Fixed Capital and Household Final Consumption Expenditure to Gross Domestic
Expenditures (GDE) in Constant 2000 Prices: 2000Q1 to 2014Q3

Source: National Income Accounts, PSA

But rather than look too far into the future, let us try predicting the immediate future.

Statistical models can provide insights into relationships in the data that allow us to generate scientific
forecasts of future events, especially in the short term, provided that past trends and other patterns
found in data continue. These models are not full proof, as Nassim Nicholas Taleb cautions notably in his
book “The Black Swan,” but statistical models, for whatever imperfections they have, allow us to get a
taste of what may likely result, plus or minus some degree of uncertainty.

An examination of outputs of subsectors comprising the major sectors of the economy (see Figure 3)
using statistical models suggests that the fourth quarter performance of the entire agriculture sector will
bounce up from last quarter’s negative 2.7% to positive growth. My best guess would be around 1.2%
for the sector, but Ruby and Seniang may temper this down a bit, with the industry and services sectors
likely to grow 8.3% and near 6.0 %, respectively in the fourth quarter to yield a fourth quarter GDP
growth of 6.2%, and thus making full year economic growth at 5.9%. While this is much lower than the
low end of the government’s target growth of 6.5% to 7.5%, it is still a very good growth figure.
Figure 3. Output of Major Sectors in the Philippine Economy (in Constant 2000 Prices): 2000Q1 to
2014Q3

Source: National Income Accounts, PSA

Figure 3. Output of Major Sectors in the Philippine Economy (in Constant 2000 Prices): 2000Q1 to
2014Q3 Source: National Income Accounts, PSA

Very likely, my fearless forecast will be off, but by how much, we shall see when the PSA releases the
actual GDP figures for 2014. Danish Physicist Niels Bohr (1885-1962) warned about the perils of
forecasting: “Prediction is very difficult, especially if it's about the future.” Even St. Augustine of Hippo in
De Genesi ad Litteram (Book II, xviii, 37) counsels against believing in soothsayers and numerologists:
“The good Christian should beware of mathematicians, and all those who make empty prophecies. The
danger already exists that the mathematicians have made a covenant with the devil to darken the spirit
and to confine man in the bonds of Hell."

So, why bother making a forecast?

When I headed the NSCB, which was then tasked with producing the GDP, I kept pointing out that the
NSCB was not in the business of forecasting. If I gave forecasts and they would be inaccurate, my office
would lose credibility, and if the forecasts would be accurate, the NSCB would be accused of making the
forecast come true. Now that the NSCB has been consolidated with other agencies into the PSA, and I
am no longer responsible for official statistics production, I offer my insights (and predictions) to the
public for whatever purposes they serve.

Every time I see numbers, I see much more… but of course, there is danger that I may be seeing more to
the numbers than what the numbers are really saying. After all, there is truth to what my English
teacher Manny Leviste regularly told me and his countless students: “everyone is entitled to his own
WRONG opinion!!!” - Rappler.com

Dr. Jose Ramon "Toots" Albert is a professional statistician who has written on poverty measurement,
education statistics, agricultural statistics, climate change, macro prudential monitoring, survey design,
data mining, and statistical analysis of missing data. He is a Senior Research Fellow of the government’s
think tank Philippine Institute for Development Studies, and the president of the country’s professional
society of data producers, users and analysts, the Philippine Statistical Association, Inc. for 2014-2015.
What can we expect to see this year?"

2019 has come into being after a year that saw GDP (gross domestic product) grow at
an above-six percent pace but slow down as the year progressed. The average growth
of 2018’s four quarters will probably be in the vicinity of 6.3 percent.
The performance of this country’s economy in 2018 will very likely be determined by the
same factor that largely shaped last year’s economic outcome: Philippine external trade,
the first TRAIN (Tax Reform for Acceleration and Inclusion) package and strong
consumer demand. To this trio will be added, this year, two major factors, namely,
TRAIN 2 and the spending associated with the May 13 mid-term election.
One word characterized the Philippine economy better than any other in 2018, and that
word was “inflation.” The Duterte administration’s economic managers totally
miscalculated —or, heaven forbid, deliberately understated—the impact of TRAIN 1’s
excess taxes on the inflation rate as measured by the CPI (consumer price index) not
many weeks after January 1, the start of implementation. The excise taxes began to
sweep across the economic landscape, raising producer costs and consumer prices. By
far the worst offenders were the excise taxes on petroleum products, which translated
into higher costs for the manufacturing, energy and transportation sectors. The inflation
rate steadily rose during the year, reaching 6.7 percent in October, its highest level
since the world economy was made worse by the turmoil in the rice trade. Prices rose
way above the P22-per-kilo price of NFA (National Food Authority) rice. Trying to help
deal with an essentially fiscal issue, the nation’s monetary authority raised its basic
lending rate three times, to its highest level in 11 years.
Given the weakness that has long characterized Philippine merchandise trade, the
massive import buildup associated with the Duterte administration’s Build, Build, Build
program was found to begin to take its toll on the BOP (balance of payments) so it did,
and at yearend the merchandise account of the BOP was headed towards $40 billion,
the highest level in this country’s history. Needless to say, the peso steadily lost
strength, staying above 54 to the US dollar throughout the year. The resulting rise in the
cost of imports exacerbated the worrisome state of the BOP.
Data released by PSA (Philippine Statistics Authority) indicate that as 2018 progressed
the TRAIN-induced rise in prices caused consumers to spend less, but overall
consumer demand remained strong. The principal source of the consumer’s purchasing
power —OFW (overseas Filipino workers) remittances—likewise remained strong.
Barring a catastrophe or a severe disturbance in the Middle East, the remittances of the
millions of Filipino workers in that part of the world will in the foreseeable future remain
the main source of consumption funds for their families back home.
Having seen the adverse impact of TRAIN 1’s excise taxes on consumer’s incomes,
and therefore on their purchases, many legislators and businesses have been warning
the DOF (Department of Finance) against proceeding with the implementation of TRAIN
2 when it is enacted into law. They have singled out for TRAIN 2’s additional fuel excise
taxes, which they believe was the principal cause of last year’s inflation. Emboldened by
the decline in world oil prices towards yearend, DOF’s leadership has indicated that the
agency intends to stick by its timetable. That is likely to cause new inflation to rear its
ugly head again, with due consequences for the consumer spending that has been
providing strong support for the economy of this country.
On the positive side of the Philippine economy’s 2019 prospects is the mid-term election
in May. Elections are always occasions for huge increases in aggregate spending; the
coming election surely will not be an exception. It has been estimated that elections
generate increments to GDP (gross domestic product) ranging from 0.5 percent to 1
percent. Since the coming electoral exercise will not be a presidential election, the
increment to the 2019 GDP will likely be chosen to the lower end of the range.
Looking back, 2018 began on a strong note but lost some steam as the year
progressed, thanks largely to the instability caused by the inflationary surge. When they
are all in, the data will probably show that this country’s GDP grew by around 6.4
percent over the 2017 figure.
How will the economy fare in 2019? Growth in excess of 6 percent appears to have
become the new normal, and thus far I don’t see anything on the horizon that is likely to
break that trend. The question is, how far above 6 percent will 2019 GDP growth go?
Notwithstanding the fact that GDP has never approximated the upper end of that range,
BSP (Bangko Sentral ng Pilipinas) doggedly sticks to its 7 to 8 percent target range for
GDP growth.
Barring any hugely negative or hugely positive development such as a humongous rise
in the world oil price, I cannot see, in 2019, a departure from the 6- to 7.7 percent
growth that his country’s GDP has been registering in recent years. TRAIN-generated
inflation and the trade gap will see to that.

Philippines Economic Outlook

January 22, 2019

The economy likely ended 2018 on a strong note, with Q4’s average PMI print posting the strongest
quarterly result of the year and cash remittances sustaining solid growth in October and November.
Nevertheless, the trade deficit remained elevated near a record high in November, as exports
contracted on a drop in electronic parts shipments. Momentum will likely be broadly stable in Q1,
despite tighter monetary conditions, as falling inflation supports household spending. On the political
front, a government impasse over the 2019 general budget that caused lawmakers to miss the
deadline to pass it could weigh on growth in the quarter, as the stalemate has put infrastructure
projects and a government employee pay hike on hold. Moreover, a ban on infrastructure projects
ahead of elections in May will also likely dampen government spending in H1.

Philippines Economic Growth

The economic outlook for 2019 remains promising thanks to a thriving domestic economy. Solid
household spending, fueled by remittances, and strong investment, which should be driven in part by
the government’s infrastructure program, should underpin domestic demand. However, if the
government budget standoff drags on, H1 growth could be hampered significantly. Moreover, sharp
import demand caused by the government’s infrastructure push and looser import quotas is
expected to keep the current account balance in the red. FocusEconomics panelists see GDP
expanding 6.3% in 2019, which is down 0.1 percentage points from last month’s forecast, and 6.3%
again in 2020.