GDP growth resilience, and the finance and budget lecture at the PDE reunion

Last week the Philippine Statistics Authority announced that the GDP growth in the 2^nd quarter (Q2) of 2023 was 4.3% — lower than the Q1 growth of 6.4%, and lower than the 6% expected by most economists. I myself projected growth of 6%, having forgotten to consider the base effect of high government and household spending in the Q2 2022 election period.

Nonetheless, some articles quickly appeared that bashed the 4.3% growth. One paper suggested that Philippine growth is grinding to a “halt,” which is intellectually dishonest. In Q2 2023, Europe’s top two largest economies, Germany and the United Kingdom (UK) had GDP performances of -0.2% and 0.4%. ASEAN’s richest economy, Singapore, grew by 0.5% while South Korea’s was 0.9%. The Philippines grew by 4.3% and it is grinding to a “halt”? That is a ridiculous political hit job.

I checked the GDP performance of the world’s top 50 largest economies in GDP size nominal values in 2022 (No. 1 was the USA, No. 2 China, No. 39 the Philippines, No. 50 Portugal). Of these 50 economies, five have no quarterly data, and as of this writing, 22 have GDP data until Q1 only (including Japan, Thailand, India, Malaysia, and Canada), and 23 have data until Q2. I averaged the Q1 and Q2 or first half (H1) performance of the 23 economies that provided the data, and the results are very interesting. (See Table 1)

One — The United Arab Emirates (UAE) has had the fastest H1 performance at 8.5%, followed by the Philippines and China with 5.4%. But the UAE’s fast growth rested on a low base, with low growth of only 0.6% in H1 2022, which was the same for China with only 2.6% last year. Whereas the Philippines’ 5.4% rested on a high base, with high growth of 7.8% last year. So, it shows that the Philippines has the most dynamic, most resilient economy out of the 23 here.

Two — If the other 22 economies report their Q2 performance soon, their H1 performance very likely will be lower than Philippines’ because their Q1 data were all lower than the country’s 6.4%.

Three — The global economic environment this year is worse than last year. Of the 23 economies, only five (the UAE, China, Mexico, Hong Kong, and Russia) have H1 2023 results that are higher than in H1 2022. Among the other 18 economies, some suffered huge growth deceleration, like the UK which was at 7.2% in H1 2022 then 0.3% in H1 2023; Austria, which went from 7.5% to 0.8%; Singapore, which went from 4.3% to 0.5%, Taiwan, from 3.4% to -0.7%; and Sweden from 4.7% to -0.8%. Germany is technically in a recession with -0.2% in both Q1 and Q2.

With an economic resilience like this, the Philippines’ economic team has actually done a good job. Minus a political agenda, and just a pure economic assessment considering the worsening global and regional economic environment, one sees that the Philippines deserves a toast.

GOVERNMENT CONSUMPTION
Now, looking at the sources of growth deceleration — GDP on the demand side, the decline showed up in government consumption which constituted 15% of GDP in 2022, again after a high base in H1 2022 related to the elections in May 2022.

Looking at GDP on the supply side, the decline occurred in the industry sector which constitutes 30% of GDP, particularly in manufacturing. The global slowdown in trade plus high domestic interest rates must have contributed to this situation. (See Table 2)

To give more context, the billions of pesos and not just percentage changes are shown in Table 3. The GDP performance in H1 2022 of P9.6 trillion already recovered or overtook the pre-lockdown period H1 2019 of P9.45 trillion.

Industry performance in H1 2023 of P3 trillion has slowed down percentage wise, but value is still high compared to H1 2019 of P2.88 trillion or H1 2022 of P2.93 trillion.

PUBLIC DEBT/GDP RATIO
One big issue that the economic team must address seriously is the big jump in the country’s public debt/GDP ratio since the ill-advised strict and prolonged lockdown dictatorship of 2020-2021. Recall again that the Philippines’ GDP contraction of 9.5% in 2020 was the worst in Asia, and the worst in Philippine economic history since World War 2.

I put together a table comparing public debt/GDP ratios. While the Philippines’ ratio has increased to 57.5% in 2022, this is still lower and more manageable compared to the 66% of Malaysia, 76-77% of Pakistan and China, 83% of India, above 100% of Singapore and the G7 countries except Germany. (See Table 4)

We should focus on reducing the numerator (public debt) while expanding the denominator (GDP size). Political hit jobs via dishonest economic assessments do not contribute to solving these important twin challenges.

DIOKNO AND PANGANDAMAN LECTURES
This coming Saturday, Aug. 19, the UP School of Economics (UPSE) Program in Development Economics (PDE) Alumni Association will hold a homecoming. The first program is “A Conversation with Finance and Budget Secretaries on Financing Sustained Growth” with Finance Secretary Benjamin Diokno (7^th PDE batch) and Budget Secretary Amenah Pangandaman (33^rd PDE batch) as speakers. This will be held at the UPSE auditorium in UP Diliman at 4 p.m. This is open to the public.

There are oodles of issues in finance and spending in the country and they are the top officials of the government to address these issues. See for instance these recent reports in ����ý, mostly written by my other favorite objective economics reporter, Luisa Maria Jacinta C. Jocson.

A. Finance and taxation reports: “Untaxed tobacco seen costing gov’t P30B this year,” “Sale of defunct GOCCs’ assets expected to raise over P25B,” “Outstanding debt hits P14.15-T as of end-June” (Aug. 2); “Outstanding debt seen to hit P15.8-T in 2024” (Aug. 3); “BIR files 127 tax evasion complaints” (Aug. 4); “Falling interest payments seen benefiting other gov’t programs” (Aug. 8); “Q2 debt-to-GDP ratio flat at 61%” (Aug. 10); “Proposed tax reforms seen to raise P120.5B in revenues next year” (Aug. 11); and, “Business groups welcome amended CREATE rules” (Aug. 14).

B. Budget and spending reports: “Budget dep’t seeking to fully digitize gov’t procurement process” (July 31); “Study on gov’t pay hike could finish in time for 2024 budget” (Aug. 1); “DBM submits P5.77-trillion national budget to House,” “MUP pension budget for 2024 set at P164B” (Aug. 3); “Consensus reached on mandatory MUP pension fund contributions” (Aug. 7); “DBM to review agencies’ budget use” (Aug. 8); and, “Agencies ordered to draft catch-up spending plans” (Aug. 10).

PDE graduates from different batches, from the late 1960s to 2023, are encouraged to attend this very important lecture and meeting with their fellow alumni.

While the lecture is open to the public, the succeeding program, the PDE reunion, is exclusively for PDE alumni and faculty. On behalf of the organizing team, I would like to thank the following corporate sponsors for their donations in kind, for raffles and give away to participants: San Miguel Corp., Robinsons Retail, Meralco, Astoria Hotels and Resorts, Nestlé Philippines, Gallerie Joaquin, Japan Tobacco, Inc., iOptions Ventures Corp., Philip Morris Fortune Tobacco Corp., and Alas Oplas & Co. CPAs. Thank you.

I particularly want to mention these friends who represent their respective companies above: Ferdie, Robina, Joe, Jeffrey, Arlene, Jack, Robert, Pidro, Noel, and my sister Marycris. Thank you.

Bienvenido S. Oplas, Jr. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers.

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