On August 8, 2019, the Philippine Statistics Authority announced that the gross domestic product or GDP grew by 5.5 percent for the second quarter of 2019. This is good. For one, the growth is better than the World Economic Forum’s forecast for 2019 of 3.2 percent for the world, 2.6 percent for advanced economies, and 4.1 percent for the emerging market and developing economy group where the Philippines is included. Looking into the past presidential administrations, the Duterte administration still has the fastest average growth of 6.4 percent compared to the 6.1 percent and 4.6 percent of the Aquino and the Arroyo administrations, respectively.
This is also bad. While it is standard practice to compare the Philippines with the emerging market and developing economy group, it is better practice to compare it with its closer neighbors and economic partners—the emerging market and developing Asia group. Using the World Economic Forum’s forecasted growth, the Philippine GDP growth of 5.5 percent is still less than the said group’s 6.2 percent.
Long-term wise, the economy has a certain natural growth. If, for instance, the population grows by 2.3 percent per year, then naturally, the number of workers (suppliers) and consumers (demanders) increase by the same magnitude, hence a natural increase of 2.3 percent per year. On top of that, the economy also grows naturally due to technological advancement, improvement of knowledge, better productivity and so on. Counting population growth and others, this natural growth has slowly but steadily increased from just over 3 percent in the beginning of the 21st century to about 6 percent at present.
Naturally, the actual growth sometimes outpaces the natural growth of 6 percent which results in what is referred to as positive output gaps. But sometimes, output growth underperforms the natural growth which results in what is referred to as negative output gaps. With the natural growth of 6 percent in mind, the GDP growth of 5.6 percent in the first quarter of 2019 marks the first time in four years that the economy is in negative output gap, and the growths in the first and second quarters of 2019 mark the first time in six years that the economy is in negative output gap for two consecutive quarters.
As mentioned, the Duterte administration still has the fastest average growth of 6.4 percent among the 21st century administrations. However, evidence seems to indicate that this happens out of luck. Toward the end of the Aquino administration, that is since the first quarter of 2015 when GDP grew by 5.1 percent, it continued to accelerate approaching 6.7 percent in the first quarter of 2016, the quarter before the presidential election, and peaked to 7 percent in the second quarter of 2016, the quarter of the election.
After the election of President Duterte, momentum seemed to carry on when we experienced seven consecutive quarters of GDP growths above the average of 6.4 percent from July 2016 to March 2018. But after that, momentum seemed to reverse when we experienced five consecutive quarters of below average growths from April 2018 to March 2019. In the beginning of the reversal, growth roamed just below 6.4 percent. But in 2019, it dipped to 5.6 percent in the first quarter and then grew the slowest to 5.5 percent in the second quarter. Looking back, the average growth is fastest in this administration only because, by luck, the previous administration effected above average growths.
The good thing is that the present administration is only halfway through its term. Halfway, the administration’s array of infrastructure projects in the “Build, Build, Build” program has a dig-a-hole-only-to-cover-it effect. Halfway through, by BBB, nothing gets built, yet. All the construction that goes on are still not functional. They are as good as constructions of digging and covering. Toward the end, BBB actualizes real functional infrastructures. Such infrastructures will only help the economy, so that toward the end, the economy may grow faster.
The bad thing is that momentum is on the side of slowing economic growth. The trend so far is clear. Seven-consecutive quarters of above 6.4-percent growths have been followed by five-consecutive quarters of below 6.4-percent growths, and it is still slowing. More so, an economy that is supposed to be on a build-build-build mode is expected to see a construction led growth, and this expectation was met except in the last two quarters, where, in reverse momentum and inexplicably, it has been one of the sources of economic slowdown.
It was mentioned earlier that the present administration was lucky enough to benefit from economic growths that likely had to do with the previous administration’s sound macroeconomic policy. Hopefully, this administration will succeed in its policies so that it may have some luck to pass on to the next administration.
Luis F. Dumlao, PhD, dean, John Gokongwei School of Management, Ateneo de Manila
University