Thursday, 1 December 2011

GDP: Terrible, why?

Business Mirror
ONE week ago, the title of this column was “2011: A Wasted Year.” There was some surprise in opening the e-mail Inbox and finding responses such as, “Noticed you haven’t been your usual positive self” and, “You really took a different route. No it’s not pessimistic; nonetheless you really painted a gloomy picture of 2011. So I thought I guess it was that bad for a positive person like you to write about it.”

That column was written before the third-quarter economic-activity numbers were released. There is one word to describe the Philippines’s economic performance: terrible.

The Philippines needs 4-percent gross domestic product (GDP) growth just to stay even. To register a 3.2- percent growth is to say the country is slipping. Further, the economy has been going in reverse for all of 2011 and it is not going to get any better, according to Trade Secretary Gregory L. Domingo. He believes the annual results for 2011 will be somewhere between 3.5 percent and 4 percent. Terrible.

And it gets worse.

While the GDP number was bad enough, the GNI (gross national income) growth was about five steps down from “terrible.”

GNI in the third quarter grew at 1.6 percent. In 2010, that growth was 6.9 percent. GNI measures all income, including from outside the country, from Shoemart malls in Guam to San Miguel beer operations in China.

But the secretary said he is confident the worse is over in terms of GDP growth. Ok, now I have moved in to the House of Pessimism.

In explaining the poor economic performance of the nation, Romulo A. Virola, secretary-general, NSCB, had this to say: “The so-called death spiral of debt that hounds our trading partners, the uninvigorating, albeit already expanded government spending, and the decline in fishing due to unfavorable weather and the high cost of fuel contributed to this relatively lethargic growth.”

Let me tell you about that “death spiral of debt”; it is getting worse and will continue to get worse. The European financial system is about a month or less from complete collapse. Multinational companies are drawing up contingency plans for the demise of the euro currency. The UK is making plans for potential riots and devastating social unrest. Germany cannot sell its bonds at an acceptable interest rate and Italy was forced to pay an interest rate 60-percent higher than last month. Now Europe is depending on the International Monetary Fund (IMF) for money to bail the continent out of its problems. Depending on the IMF means depending on the US. If the US is going to be the financial savior of the world, I will move to “gloom-and-doom.” I think Secretary Domingo is a little too optimistic that the worst is over for the Philippine economy.

But that optimism is not what bothers me.

The debt death spiral has been a fact for three years. The situation has been progressing from the ICU to now, perhaps, the morgue. The administration has been in charge for 18 months. Surely someone must have known that the global situation was getting progressively worse, not better. What is to be done with the Philippines’s euro holdings as the currency falls in value? Where is the presidential folder containing the government’s contingency plan against more global meltdown? I bet Ramon Ang has one on his desk for the San Miguel group.

Sec-Gen Virola was being kind in calling government spending “uninvigorating.” When government spending falls 12 percent year-on-year, uninvigorating is an understatement. A decision was made by the government last year to reduce spending to make stronger the financial condition of the government. There is nothing wrong with that idea. However, when that decision was made, did anyone look at the potential negative consequences to the economy? That is what economic planners are supposed to do. And government policy-makers are supposed to balance benefits with disadvantages.

The government experts forecast that GDP growth for 2011 would be 4.5 percent. To date it is only 3.6 percent for nine months. The government blames the global debt, the weather, and the price of crude oil for missing that prediction by so much.

All of those factors are beyond direct control. However, they always have and always will be beyond control. So what exactly is the purpose of government economic planners?

In the US, New Jersey Gov. Chris Christie said this about the failure of the Obama administration to reduce the budget deficit. “I was angry this weekend listening to the spin coming out of the administration. The President knew it was doomed for failure, so he didn’t get involved. Well then what the hell are we paying you for? What have you been doing, exactly?”

E-mail to and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by Inc.

No comments:

Post a Comment