Tuesday, 2 June 2009

What's wrong with the latest Philippine GDP data (I)

The real economic numbers
Outside the Box
John Mangun

For more than 30 years, I have been a financial professional, analyzing and interpreting economic and business data. And never in those decades have I seen an official government economic report as suspect as the release last week of the first-quarter Philippine economic numbers.

I felt as if I had bought a used paperback novel from National Book store and several chapters were missing. It seems to me that the number crunchers who prepared the report may know how to add and subtract properly; they just do not have a clue what the numbers mean. To say that the data indicates or foreshadows a recession is pure fantasy. If I were less of a gentleman, I would describe the conclusions voiced publicly about the economic data with one word that starts with the letters B-U-L-L.

Let me explain.

We are told that the economy is so bad that personal consumption and spending are in serious trouble. Except that personal spending rose 9 percent from first quarter 2008 to first quarter 2009. Tell me again about personal spending dropping. But, the “experts” tell us, between 2007 and 2008, personal spending rose 15 percent. Yes, absolutely, and here is why.

In that 2007 period, oil cost $55. In 2008, the cost in the January-March period was $100 so, of course, personal spending went much higher over 2007. Fuel prices nearly doubled. This year, 2009, oil was selling at $45 so we did not have to spend as much for gasoline. Yet spending did go up, and where was the biggest jump? Food. That increase was not because food prices were significantly higher; it was because we had more money to spend for the table and not for the gas tank.

See, the number crunchers are not looking at what is called “current prices.” That is why they can say that personal spending grew only by 0.8 percent. They are using the statistical practice of using “constant 1985 prices, ” using “constant peso-value” factors in inflation to make a value comparison over a long period.

Two things.

One, “constant peso” distorts the picture when measuring in the short term, say, one or two years, because inflation is not a significant factor over a short period. Further, for the purposes of short-term economic data as this current report is, the “value” of the peso is not important. The only important question is this: Did Filipinos buy more goods and services in 2009 than in 2008? And the answer is yes, 9 percent more. If we were able to buy 9 percent more this year than last, obviously some people have redefined the word “recession” to suit their own false perception.

What about the performance of specific industry sectors? Here again, the “experts” want to use 1985 constant pesos to make their point. However, using real 2008-09 pesos, the ones we use every day, all major sectors grew over 2008. Agricultural production up 9.2 percent, industry up 1.1 percent, services up 5.7 percent. That means across nearly all sectors, the Philippines produced more. In fact, we produced 4.8 percent more over 2008; not the 0.4 percent that the headlines banner. That production is called the gross domestic product (GDP). By comparison, the USA’s current dollar GDP in first-quarter 2009 went down 3.1 percent.

What about our money relationship with the rest of the world? Exports dead. Remittances dying. Nonsense. Our net monetary inflows in first-quarter 2009 are staggering. In part due to the drop in oil prices and factoring in the increase in remittances, inflows to support the outsourcing industry, tourism and all other sources including borrowing, net money inflow increased by an amazing 53.7 percent over 2008. This fact completely renounces all the gloom and doom about the subject you read three months ago. No comparison to 2008, the Philippines is a cash magnet for the rest of the globe. Yes, foreign investment is down significantly. What do you expect? The foreigners are broke. Malaysia’s foreign investment in the first quarter dropped 79 percent. China down 34 percent. The bright side: The Philippine economy is not dependent on foreign money the way the others are.

One hidden very bright spot is in capital formation. That is the transfer of savings from households and governments to the business sector, resulting in increased output and economic expansion. Overall, there was a decrease of 0.2 percent. Less money was spent in the manufacturing sector. But construction was up 22 percent and agriculture up 49 percent. With the general global attitude so negative, the capital-formation numbers should have tanked if we are in a recession. India, for example, saw capital formation drop 2.3 percent.

The bottom line, though, is this: Philippine gross national product (GNP), the value of what we produced added to the money that came in from abroad from all sources, increased by 9.3 percent over first-quarter 2008 in current pesos. That is not as good as 2007 to 2008, where the current peso GNP increase was 14.2 percent, to be sure. And the GDP only grew 4.8 percent lower than 2008’s current peso 11.7 percent.

But even using “constant peso” values, GNP grew by 4.4 percent over 2008. Not bad for a country in “recession” while the rest of the world slowly burns to the ground. More about that on Thursday.

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