The 2nd Quarter GDP Estimates: What Do They Mean?

August 12-19, 2023

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Real GDP growth rate for the 2nd Quarter 2023 has been estimated at 4.3% by the Philippine Statistics Authority (PSA).This is much lower than anyone’s expectations. A Business World survey of 21 economists/analysts  showed estimates ranging from a high of 7.5% to a low of 5.5% (it is consoling that Ernie Pernia, former NEDA head, gave this lowest estimate). The median estimate (the same number of estimates were higher as were lower) was 6.0%. In any case, even the lowest estimate is a far cry from the 4.3% actual growth.  


Three of those analysts even thought that the 2nd Q growth would be higher than the 1st Q, but so long as the media immediately forget the inaccuracies of forecasters, and continue to ask – and print – their forecasts, you can  expect the widest range.


Is the Philippines still the best GDP growth performer in the Asia Pacific, as PBBM bragged about in his SONA?  Well, Indonesia’s 2nd Q is 5.2%, higher than was forecasted. So the answer is No.   


Anyway, Reader, Fun Fact: With the first half of 2023 showing a GDP growth of 5.35% (1st Q  6.4% plus 2nd 4.3% = 10.7% ; divided by 2 = 5.35%), this means GDP will have to grow by an average of 6. 65 % for the last two quarters of 2023 in order to hit the lower end of PBBM’s target for the year.  No way, Jose.


Remember my blog of July 21, “How to Judge PBBM by His Own Standards”?  There, based on the 1st Q GDP growth rate of 6.4%, I gave a thumbs up to his likely achieving the Philippine Development 2023-2028 headline target of 6-7% for 2023, although I pointed out that the data showed a growth slowdown. Now, given the data for the 2nd Q, that thumbs up emoji has to be changed to a thumbs down, which means that PBBM’s overall performance, using his own metrics, has so far been less than mediocre for 2023.  GDP, Inflation (core and food), and Quality of Employment targets will definitely not be met.  Stay tuned.


The infographics that the PSA created in its website to show what is happening to our economy in the 2nd Q  is an easy read, Reader. Give it a try.  It illustrates the year-on-year growth rates in percent of the major sectors of the economy:  agriculture, industry and services for the production (supply)  side; and household and government final consumption expenditures, gross capital formation and exports and imports on the expenditure or demand side  (C + I +G + X-M for those who have taken economics).  


It also tells us the sectors, both on the supply and demand side which showed the fastest growth; and finally, it shows the top contributors to that 4.3% GDP growth rate posted by the economy in the 2nd Q.  


On the year-on-year growth rates  of the major sectors of the economy, ALL of them showed growth slowdowns — their growth rates in the 2nd Q of 2023 were lower than the growth rates in the 2nd Q of 2022.  For example, agriculture growth rates went down from the measly 0.22% last year to a measlier 0.16% this year. 


 I single out this sector not only because PBBM is agriculture secretary, but because growth in agriculture, according to the literature, is two to  three times more effective in reducing poverty than the equivalent amount of growth generated in other sectors. What is more, this conclusion holds irrespective of the empirical method or the poverty metric used to estimate this. And given that our poverty incidence increased in the second half of PDut’s term, as well as the poverty target in the PDP 2023-2028, PBBM better make sure that he either performs better as Agriculture chief, or fire himself and give the position to a much-more qualified person – which precludes any politician, past or present.


An equally unsettling  discovery is that Gross Capital Formation (GCF) contracted by 0.04% in 2nd Q 2023, after showing such a robust 17.2 % growth in the same period last year. What is so unsettling about that?  Gross Capital Formation (GCF) is defined in the Philippine System of National Accounts (PSNA),  as investments put in place and measured by the total value of fixed assets/capital formation, changes in inventories and acquisitions less disposals of valuables.  


In other words, investments this quarter are actually less than investments in the same quarter last year, which means that c.p.  (caeteris paribus or everything else remaining the same), GDP not only will not grow, it will contract, by whatever the investment multiplier is. We hope this does not become a trend.


Worse, the quality of those investments also deteriorated.  What is the proof of this?  The PSA infographics show us that the fastest growths in 2nd Q 2023 were in “valuables”, which is part of GCF as defined above. But valuables (e.g. art objects, antiques, precious metals), which grew by a whopping 94.9% , are not produced  goods used for further production .  So I don’t understand why they are included as investments, but the national income accountants  know better.  So if GCF  has decreased, while a component of it like valuables has increased, that can only mean that the quality of our GCF has deteriorated. QED.  


That said, the National Income Accounts show that I am making a mountain out of a molehill, because valuables are the tiniest part of GCF in value.  However, the point is that the quality of investment is at least as important as the quantity of investment, as the Marcos Sr.’s administration’s debt crisis has proven. It is a point that has to be driven again and again, because politicians forget.


Additionally, the huge growth in valuables tend to show that GDP growth is “ruthless”, i.e., that the wealthy are getting wealthier and the less wealthy are not benefitting from the growth.  As with investments, it is not just the quantity of growth that matters, but its quality as well.  


There is some good news about our GCF.  Expenditures on durable income grew by 10.8%.  Let  us hope that their quality matches their quantity.

To end on a lighter note, the government’s final consumption expenditures decreased by 7.1%in 2nd Q 2023, as compared to the 10.7 % increase it experienced in the same period last year.  We should not rue  that huge drop, because last year was an election year and the government consumption growth data is hard evidence that  politicians  always manage to use the people’s money to increase their reelection chances, no matter the state of the country. 


PSA GDP Estimates 

As I See It

The Official Blog of Winnie Monsod

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