LA SOLIDARIDAD: The ABCs of the Philippines GDP: Growth or No Growth?

The Philippine media has been screaming about the Philippines GDP “growth” in ritual fashion recently. The spin is that the GDP growth of 5.9% for Q2 2012 bested others in Asia. Seasonally adjusted figures however show a different story.

The Conventional Wisdom

The Secretary of Finance Cesar Purisima, said in a statement at the DOF website

Despite the deceleration of global growth, and with the backdrop of increasing uncertainty in the U.S. and in the Eurozone, our second quarter growth was at a respectable 5.9%, beating market expectations and placing us at the upper end of our full year forecast. This brings our first semester growth to 6.1%, well beyond the 4.7% average GDP growth of the country in the last decade.
By type of expenditure, household and government consumption continued to expand by 5.7% and 5.9%, respectively. Public construction pushed growth in total construction to 9.2%. Exports of goods grew by 7.9%, while exports of services grew by 9.9%, driving total exports to grow by 8.3%.

We can even throw in the graphics of NEDA’s Balicasan:

Those numbers of course will be carried by the foreign media. Such as these CNBC Article – Who Is Asia’s New Darling of Investors?

Medha Samant, Investment Director at Fidelity Worldwide Investment identifies the Philippines as the “new market darling” for foreign investors pointing to the country’s reduced fiscal deficit, strong domestic demand, and high overseas foreign worker remittances.

Note the reasons on why the Philippines is a “darling” to Fidelity:

Strong domestic demand – you can thank demographics for that – a population which the RH condom advocates wants to reduce.
Reduced fiscal deficit – In a world of chasm-wide government deficits, the Philippines has lower deficits than most. The focus therefore is in lowering the deficit. I wonder – what increased government spending and increased government loans will do if it is not matched by an increase in government revenue (read: TAXES and FEES). How long will the “darling” status hold when the deficit widens as the Aquino government ratches up government spending – (without any substantial improvement in poverty reduction btw except more scams from the CCT subsidy.
High Overseas Foreign Worker Remittances - Hmmm didn’t Aquino’s campaign promise have something about working overseas becoming an option instead of becoming a necessity. Noynoy demonizes Arroyo’s super-maids program – and creates a spiffier program – Super-Alila to Big Sister and Big Brother. This really shows the pettiness and barriotic thinking of our economic czars – we restrict foreigners from doing business in the Philippines – then we send out Filipinos to work in foreign lands and foreign companies. Filipino workers are courageous while Filipino businessmen are parasites. Filipino workers however are too stupid to figure out that they gotta stop protecting Filipino businessmen and start protecting the wallets of Filipino workers.

The bigger question therefore is whether the mainstream media’s INTERPRETATION of the numbers be trusted? The job is left for readers to validate and go beyond what the media is saying and check the numbers out for themselves.

If it were left to the Philippine media- Noynoy Aquino walks on water and Philippines is a Shangrila. And the framers of the Philippine constitution want to keep it that way – and restricts foreigners from providing an alternative view of what’s going on. Thank goodness for the Internet – and we don’t even have to look at the seasonally adjusted figures to see that even the seasonally unadjusted economic statistics hyped in the local media just won’t fly with the foreign media. As shown in the following:

Philippine Q2 GDP growth slows to 0.2 pct q/q, 5.9 pct y/y
UPDATE 2-Philippine Q2 GDP growth cools more sharply than expected - Note the reference to “resilience” of the Philippines. Resilience means the capacity to return to a prior state after a stressful condition. Which means, the Philippines still remains POOR – after the rest of the world underwent through strings of bubbles and recessions caused by unbridled government intervention in markets. But – even as citizens are poor – there is a group of companies (who live off one its citizens) that are protected from competition and therefore are SECURE destinations of INVESTMENTS via the stock exchange – not as direct investments on the ground which can compete against these protected companies).
Update: Philippine Q2 GDP growth slows more sharply than expected – “The quarterly growth rate was the weakest since the first quarter of 2009, highlighting the tremendous pressure building on more export-reliant Asian economies from China and Japan to Southeast Asia.”
Philippine GDP Growth Slows Less Than Expected In Q2 -

The Unconventional Wisdom

The unconventional wisdom checks for seasonality – and accounts for it.

Seasonal adjustment is a statistical method for removing the seasonal component of a time series that is used when analyzing non-seasonal trends. It is normal to report seasonally adjusted data for unemployment rates to reveal the underlying trends in labor markets.[1] Many economic phenomena have seasonal cycles, such as agricultural production and consumer consumption, e.g. greater consumption leading up to Christmas. It is necessary to adjust for this component in order to understand what underlying trends are in the economy and so official statistics are often adjusted to remove seasonal components. [2]

Seasonally adjusted GDP shows Decline

On a seasonally adjusted basis – the Philippine economy decelerated, as reported by the NSCB

All three major sectors failed to sustain their gains in the first quarter of 2012 that slowed down the Philippine economy as seasonally adjusted Gross Domestic Product (GDP) grew by 0.2 percent during the second quarter of 2012, a deceleration from a robust growth of 3.0 percent in the previous quarter.
In the same way, seasonally adjusted Gross National Income (GNI) slowed down to 1.0 percent in the current quarter from a 1.5 percent growth in the previous quarter.
Agriculture, Hunting, Forestry and Fishing (AHFF) and Services sectors also grew at a slower pace in the second quarter of 2012, with 1.2 percent and 1.5 percent growth, respectively.
On the other hand, the Industry sector registered a huge contraction during the current quarter, declining by 2.4 percent compared to a healthy growth of 3.8 percent in the first quarter of 2012.

The Long-Term View

Decline in Trade

On the long term – the components which make up Philippine GDP has shown that trade has slowed down considerably. This is not surprising as exports-oriented industries relocate out of the Philippines and towards more business friendly economies with more competitive costs.

For short – to boost the Philippine GDP – we need to look at the regulations, restrictions, tariffs, and factor costs which affect trade.

If we are competing, we ought to look at what the leader is doing – and see what measures can be adopted so we are as competitive. Thus it’s not enough to look at what the Philippines did last year – but to look at the competition. If you are competing in a race where the only participant is you – by all means – look at your year-on-year. But if you are competing with other countries – you better look at what they are doing too.

Let’s look at Singapore’s GDP. I planned to include Hong Kong’s figures but their GDP footprint is mirrored by Singapore – so let’s use SG.

The Philippines public spending as % of GDP is within the neighborhood of Singapore and Hongkong and ranges from 9% to 11%. Recall further that the Philippines TONGRESSMEN and SENATONGs want to boost public spending via CCT subsidy, PPP, GOCC subsidies, and more dole outs.

The spending side is already facing headwinds given that the revenue side is facing reduction due to a slump in business activity and resistance to tax increases.

Epilogue

What are they (Balicasan, et al) missing? Here’s what they are deliberately missing:

1. We have a high consumption expenditure – but even that is slowing down.

2. Instead of focusing on increased public spending – we ought to focus on keeping public spending at existing public levels – or even reducing it to 9% – and maintain the reduced fiscal deficit which has made the Philippines attractive.

3. Identify measures that can increase gross fixed capital formation (investments) – to include removing the 60/40, repealing protectionist legislation, streamlining registration procedures, and reduction of taxes and fees.

4. Identify measures that can increase trade – to include removing price controls, minimal tariffs, and eliminate protectionist trade regulations.

The Philippines already has a huge demographic – and a huge consumer market which makes it attractive to investment. Here’s the thing – the powers-that-be want to corner this market and keep the competition out – but in the process they also depress the purchasing power of the market. Meanwhile other countries have realized that when they open up their economies – the increased jobs leads to higher purchasing power which ALSO benefits the companies who have been trying to keep the competition out.

The problem with Da Pinas is its perverted sense of exceptionalism – it wants to be exempted from the rules that others abide with. For instance, the ASEAN Free Trade Area and the Trans-Pacific Partnership. Other countries have embraced the agreements and opened their doors to more economic exchanges in investments, trade, and tourism. The Philippine delegation meanwhile pathetically asks to be exempted from the clause which mandates that members should allow 100% ownership of investments. The economic alliance of course knew better than to waive the rules for the Philippines and promptly said NO.

At year’s end – or in the next quarter – Aquino, Purisima, and Balicasan can keep on issuing as many press releases they can about how the Philippines will become more competitive in the year 2050 while our neighbors meet their economic goals EVERY YEAR – and Filipinos find good paying jobs everywhere – EXCEPT THE PHILIPPINES.