The Philippine Statistics Authority (PSA) released Q2-2021 gross domestic product data on Tuesday, August 10, 2021. Now, the country has official data for the first half of its 2021 economic performance. Economic analysts and reporters have been trying to make sense of the published statistics. So, this week’s column presents a halftime report that attempts to answer two important questions that inquisitive minds have been asking.
Question #1: Is the country truly out of a recession? Recession, as the textbook definition goes, refers to two consecutive quarters of GDP contraction. The Philippines has had five consecutive quarters of negative growth, spelled out as follows: -0.7 percent in Q1-2020, -17.0 percent in Q2-2020, -11.6 percent in Q3-2020, -8.3 percent in Q4-2020, and -3.9 percent in Q1-2021. The latest figure of +11.8 percent shows a break from the contractionary streak; nevertheless, it would be good to put things in proper perspective.
Let GDP in Q2-2019 be represented by P100. In Q2-2020, it shrank by 17 percent (or by P17) to P83. In Q2-2021, it grew by 11.8 percent to P92.79. P92.79 – P83 = P9.79. P9.79/P17 ≈ 57.59 percent. This means that in Q2-2021, the country recovered just about 57.59 percent (or barely three-fifths) of the P17 that it lost in Q2-2020. In Q2-2022, the country needs to grow by P7.21/P92.79 ≈ 7.77 percent just for GDP to return to its Q2-2019 level of P100.
The Ateneo Center for Economic Research and Development submitted a forecast of 15.2 percent for Q2-2021 GDP growth. To simplify the explanation, ACERD assumed that in Q2-2021, the country would be able to recover 75 percent of what it had lost in Q2-2020. If the country had lost P17, then 75 percent of P17 would be P12.75. P12.75/P83.00 ≈ 15.36 percent, which, pretty much, was the submitted forecast. However, it turns out that ACERD was exceedingly generous with its assumption.
On the surface, +11.8 percent looks impressive, but studious minds should remember the so-called base effect, which is the effect that the choice of a basis of comparison or reference can have on the result of the comparison between data points. Using a different reference or base for comparison can lead to a large variation in ratio or percentage comparisons between data points. In other words, any change tends to look big if it is being compared to a small base.
For now, the country might be technically out of a recession, but as far as ACERD is concerned, the outlook for the rest of 2021 remains uncertain. Sustained growth still depends on how well the country can contain the spread of new variants and how quickly it can roll out vaccines.
Question #2: Is the government GDP growth target achievable? The following table should be instructive:
If one looks at full-year GDP, from 2019 to 2020, the economy contracted by 9.57 percent. If one looks at first-half GDP, from H1-2019 to H1-2020, the economy contracted by 9.31 percent. From H1-2020 to H1-2021, the economy grew by 3.69 percent. If one looks at second-half GDP, from H2-2019 to H2-2020, the economy contracted by 9.83 percent.
The government target for 2021 is 6-7 percent growth. If it wants H2-2021 GDP to match H2-2019 GDP, then the country needs to grow by 7.37 percent this year. If the government wants to go back to full-year GDP level in 2019, then the country needs to grow by 10.59 percent this year.
The following scenarios can be considered: 1) 6-percent full-year growth (lower end of the government target), 2) 6.50-percent full-year growth (middle point of the government target), 3) 7-percent full-year growth (upper end of the government target), 4) 7.37-percent full-year growth (if H2-2021 GDP matches H2-2019 GDP), and 5) 10.59-percent full-year growth (to bring the country back to full-year GDP level in 2019).
If one considers H2-2021 GDP, here are some computations. To achieve Scenario 1, H2-2021 GDP should be about 9,693,071 (8.21-percent growth from 8,957,544 in H2-2020). To achieve Scenario 2, H2-2021 GDP should be about 9,780,707 (9.19-percent growth from 8,957,544 in H2-2020). To achieve Scenario 3, H2-2021 GDP should be about 9,868,343 (10.17-percent growth from 8,957,544 in H2-2020). To achieve Scenario 4, H2-2021 GDP should be about 9,933,640 (10.90-percent growth from 8,957,544 in H2-2020). To achieve Scenario 5, H2-2021 GDP should be about 10,496,954 (17.19-percent growth from 8,957,544 in H2-2020).
It should be left to the reader’s imagination if any of these scenarios is achievable.
Dr. Ser Percival K. Peña-Reyes is the Associate Director of the Ateneo Center for Economic Research and Development.
