Tough Decisions to Make

Congratulations are in order to BBM and his economic team for the performance of the economy in the third quarter – July 1 to Sept. 30 — of 2022, and the first three months of his six-year term.  

I know it’s a reach – but it is they who engineered the economic and social environment within which the economy has been operating, after all.  And a 7.6% growth is nothing to sneeze at.

The Philippines has so far performed better than expected by the likes of the IMF, the World Bank, and the ADB (they all predicted 6.5% growth rate for the year 2022 as of September).   For the Philippines to have a growth rate of 6.5%, given its performance in the first 3 quarters of 2022 of 7.7%, it would have to grow by only 2.9% from Oct. 1 to Dec. 31, and that seems unlikely given its immediate past performance.  

But…

 Let’s not get carried away, Reader. We are second only to Vietnam among the Asean economies in growth performance. But not that we are a very poor second. Vietnam grew by 13.67% compared to our 7.6%, and the ADB, for example, predicted the same 6.5% growth for Vietnam and us for 2022. Also, even before Covid, we were also second to Vietnam in growth rates, but the growth gap was not 6% (13.67 – 7.6); it was more like 1% or less.

Additionally, our inflation rate is the highest in the ASEAN 5 – 

Philippines ..7.7 

Indonesia … 5.71

Malaysia …..4.5 

Thailand ….. 5.98 

Vietnam ……4.3  

This is a harbinger of not-so-very-good times to come, as far as economic growth is concerned.  You see, there is a trade-off:  bring down the inflation rate, and you tend to contract the economy as well, losing employment in the process.  BSP Governor Felipe Medalla and his monetary board have to answer the question: How much economic growth is the government willing to give up in order to bring inflation down?

That’s a tough decision to make.  What would you choose, Reader, between (1) a high inflation rate but at least you are employed and in a position to purchase goods and services, albeit less than what you want? or (2) a low inflation rate, with the possibility losing your job in the process?  

And  there’s more

And on top of that, there are still two more discouraging news that can be gleaned from the 3rd Quarter National Accounts of the Philippines (NAP).

Low Productivity 

One has to do with labor productivity (GDP divided by Total Employment).  Table 23 (Title:  Indicators Derived from the National Accounts) tells us that labor productivity decreased in Q3 2022, from Q3 2021.  Total Labor productivity decreased by 2.5%, while Agriculture Labor Productivity and Service Labor Productivity decreased by 4.4% . Only the productivity of labor in Industry increased (by 2.8%).  By the way, not surprisingly, GDP divided by Total Hours Worked also dropped, which means that every hour worked in the third quarter resulted in less GDP than the same period last year.

What does this have to do with anything?, one may ask?  

Well, one of the objectives of all economies, Reader, is to increase (not decrease ) productivity, so that more units of output can be produced with the same amount of inputs. This way, if there should be an increase in wages, the increase in productivity will reduce unit cost increases, thus reducing inflationary pressures.  Get it? And given our inflation problems, the Philippines is going the wrong way by showing decreases in productivity.

At any rate, I cannot resist pointing out that the head of our Department of Agriculture is still BBM.  He really should seriously consider giving up this job to some one more competent, and definitely one who can spend more time on the job.

 Net exports increasing (not a good thing)

The other discouraging news is that our Net Exports (imports minus exports) which are almost always negative, are increasing (this from the same Table 23).  Which means our demand for dollars to pay for our imports is increasing which, c.p., means that there will be an upward pressure on the peso price of the dollar.  

That’s why our peso is depreciating, Reader. As I said before, this depreciation will have two beneficial effects:  it will make our goods and services more attractive to dollar holders (more exports which will mean more jobs), and at the same time make imported goods less attractive because of their  higher peso costs  (therefore less imports) attractive.  

But if our economic managers do not address our decreasing labor productivity, the depreciation of the peso will not work (because the increasing domestic costs will neutralize the attractiveness of our goods).  

Then again, if this group of managers can’t get things right, no one can.  Let’s all root for them.