IMAGINE for a moment that you are the owner of a multinational company with an annual revenue of nearly $300 billion. The company has tens of millions of employees working in hundreds of thousands of subsidies across hundreds of industry sectors.
The company has a large accounting department just to keep track of all the revenue. But you know full well that the accounting cannot be fully accurate. There is just too much business to completely keep track of, and some of the subsidiaries—perhaps, as much as 40 percent of them—do not keep accurate records, if at all. But the shareholders and other outside firms that the company does business with expected data to come on a quarterly basis.
The company is medium-sized in the global business arena, but is important enough that there are many outsiders that keep track of the numbers. As with any major enterprise, the outsiders also offer the benefit of their experience and expertise to give suggestions on how to improve business.
That company is the Philippines.
In its updated Asian Development Outlook 2014 report, the Asian Development Bank (ADB) said it had downgraded its growth forecast for the Philippines from 6.4 percent to 6.2 percent this year, and from 6.7 percent to 6.4 percent for 2015.
The ADB has been in business for nearly 50 years and performs a valuable function for Asia, not only in lending, but also in identifying and implementing vital projects for countries in the continent. However, the reality is that economic-growth forecasts are estimates at best and guesses at worst.
In its Asian Development Outlook 2010 report, the ADB made the following forecast for Philippine gross domestic product growth: The economy was projected to grow at an annual rate of 3.8 percent in 2010 and 4.6 percent in 2011. The actual growth rate in 2010 was almost double the ADB estimate, at 7.3 percent. Then, in 2011, the actual growth rate was 20 percent lower than the ADB estimate, with the economy growing only by 3.7 percent.
Of course, during the year, the ADB revises its estimates according to changing conditions, and it is fair and proper to do that. But let’s be honest about this: It is like picking the winner of the basketball game at the two-minute warning buzzer. Your odds of success go exponentially higher in this situation than if you have to stick with your pregame choice.
While the basketball coach, as well as the business owner, must adjust to conditions as they change, the coach does not have to plan 12 months or more in advance, as businesses need to do. These economic-growth estimates may be important, but planning your business and personal finance around them could be hazardous to your wealth.
Image credits: Jimbo Albano