Last week we closed the financial books on 2020 and it was not a pretty picture. Of course, it did give those with perfect 20/20 hindsight something to talk, even gloat, about. Even in adversity, there is something good for everyone.
Our local economic forecasters had widely different predictions for the final results, proving once again that economics—and financial predictions—are less of a science and more of a religion. Yes, that is too harsh, but you have to admit that it seems like “faith” plays a factor in these forecasts.
All of our economic team properly expected the growth numbers would be negative. But the most optimistic was that the Fourth Quarter 2020 economic growth would come in at negative 5 percent. The most pessimistic was at negative 12.2 percent. What one thinks makes quite a difference. The actual result was a negative 8.3 percent. For the full year, “The Optimist” saw a negative 8.6 percent and the “The Pessimist,” negative 10.6 percent. The actual number was a negative 9.5 percent.
What is interesting though is that the median—the value separating the higher half from the lower half—was almost spot on at negative 8.5 percent for the fourth quarter and an exact negative 9.5 percent for the full year.
As always, it is necessary to look at the details and internals of the GDP numbers. If you are easily bored by numbers, maybe you will want to skip the next two paragraphs. No one will blame you.
For the Fourth Quarter 2020 and for the full year, here are the results: Agricultural production was down 2.2 percent and 0.2 percent, respectively. Industrial production contracted by 9.9 percent and 13.1 percent. The service sector shrank by 8.4 percent and 9.1 percent.
Household Final Consumption—consumer spending—retreated by 7.2 percent and 7.9 percent. Government spending did go up by 4.4 percent in the fourth quarter and by 10.4 percent for the full year. But “Gross fixed capital formation”—money spent by business for fixed assets like machinery, equipment, and buildings—and new inventory collapsed by 29 percent and by 35.8 percent, respectively. Likewise, “Exports” and “Imports” were also “Dead On Arrival.”
The yearlong lockdown created this vicious cycle: no economic activity equals no job growth equals no economic activity. Sad but simple.
Now, turning to 2021. Last week, the local press carried the following items. “Philippines among fastest to recover this year. S&P Global Ratings sees the Philippine economy rebounding with a growth of 9.6 percent this year. The economy will rebound strongly in 2021.” By contrast, “Fitch Solutions forecast real GDP growth of 7.6 percent in 2021. Fitch said risks are tilted heavily to the downside.” This is more than the glass being half full or half empty because both forecasts are dependent on reopening the economy. No one can predict with any accuracy when this will happen.
The difference comes down to thinking how fast consumers will react when the economy finally does start breaking the “no economic activity equals no job growth equals no economic activity” cycle. That is not simple. Much will depend on the vaccination rollout and progress. The government still is walking a tightrope on its debt situation. Business expansion will depend on consumer spending.
The next six months are going to be as difficult as the past six months. No bright light yet at the end of the tunnel.