Bouncing back

Now that the first-quarter growth figures are out, I thought I’d take a closer look at how the economy is growing. The report was a surprise to many, as most analysts had expected the gross domestic product (GDP) in the first quarter to grow between 6 and 7 percent on an annualized (year-on-year) basis. We, in the Ateneo Center for Economic Research and Development, were more bullish than that, having projected 7.6 percent, but the actual number came out even better at 8.3 percent. Has our economy bounced back from what was the deepest COVID-induced economic contraction in our part of the world? The answer is a qualified yes. Picture a ball bouncing back up, but it is worn, battered, and deformed. It needs patching up and reconditioning to keep it moving steadily toward the goal.

If by bouncing back, we mean restoring the growth rates we had before the pandemic hit us, then certainly we have. It’s already the fourth consecutive quarter that we’ve had the economy grow at rates significantly above the 6 percent we had in 2019, and the 6-7 percent yearly growth we had averaged since 2010. But those impressive quarterly numbers (12.1, 7, 7.8, and now 8.3 percent) were high simply because they were pushed up by the so-called “base effect”; that is, it’s easier to get a higher percentage growth when the previous level was a low number. For each of those rates, the corresponding year-ago rates were very negative (-16.9, -11.6, -8.2, and -3.8 percent), which means we’ve indeed been growing from a deeply depressed base. Wait until the next (second) quarter, when the comparison would now be with the quarter last year that saw a 12.1 percent bounce back. You can bet that the growth rate would not be as high as the 8.3 percent we just got, but should be closer to the 6-7 percent that has been our “normal” growth rate over the last decade.

But all told, it’s not the growth rate we should be looking at in order to judge if we have indeed bounced back. To bounce back means getting back to where we were before, and here, it’s the level, not the growth rate, of GDP before the pandemic came that should be our point of reference. The good news is that we have actually finally recovered, and even exceeded, the quarterly GDP level we had reached in late 2019. Valued at constant 2018 prices and adjusted for seasonality for comparability, our last peak quarterly GDP of P4.89 trillion in Q4-2019 was already slightly exceeded by the P4.90 trillion posted in Q1-2022 (about 0.2 percent higher). But it’s no time to rejoice just yet, for several reasons. Remember that our population grew by about 3.4 percent since then (i.e., at an annual rate of about 1.7 percent), so this means we haven’t yet caught up with that. Every Filipino still gets a smaller slice of our proverbial bibingka than before—and that’s assuming that the GDP bibingka is sliced equally for every Filipino, which we know is farthest from the actual situation.

A closer look at the more detailed numbers behind the aggregates, in fact, points to heightened inequalities after the pandemic. Agriculture, Fishery, and Forestry, and Industry have yet to recover their late 2019 levels; it is only Services that has surpassed where it was before the pandemic. But the sector has had a major shakeup. Since January 2020, hundreds of thousands of jobs have been lost in transport (350,000) and accommodation and food services (456,000) as of March 2022. The data suggest that displaced workers from these industries, and also from manufacturing, turned to agriculture (which gained 2.2 million new jobs) and trading (which gained 1.45 million). These jobs are mostly of the informal sector kind, as affirmed by the 1.9 and 1.3 million jump in individually self-employed workers and unpaid family workers, respectively.

But this restructuring of the economy toward more informality also lowers the potential taxes to be collected from a given amount of GDP. In the face of huge new debts to be paid, the job of the country’s next financial managers will be a truly herculean task. I’m not surprised it’s taking so long for the presumptive president to name his finance secretary. The choice could make or break the presidency itself.

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