While 8.3% year-on-year gross domestic product (GDP) growth in the first quarter of 2022 is welcome, research group IBON said this is mainly driven by base effects and election-related spending rather than just the reopening of the economy. Growth is also weak and unsustainable considering the unfavorable jobs market. Things could be even worse depending on how the volatile global economy plays out. The group said that this will likely be the last relatively high growth reported, and the next administration will have to make do with weaker growth performance.
The first quarter 2022 growth reported by the Philippine Statistics Authority (PSA) mainly comes from a 3.8% contraction in the same period in 2021. This is following relatively high GDP growth registered in the second, third and fourth quarters last year only compared to the huge contractions in 2020 and early 2021. This trend, IBON said, is unlikely to be sustained with the base affects now exhausted and subsequent quarterly GDP growth going to be compared with positive growth since the second quarter of 2021.
IBON said that rapid first quarter 2022 growth also likely received a boost from election-related spending. Although campaign spending is reportedly more mass and social media-heavy now than before, it is likely that substantial amounts were still spent on transportation, accommodation and food services, and campaign materials.
Transportation significantly rose from -19.9% growth in first quarter 2021 to 26.5% in first quarter 2022, and accommodation and food services from -22.5% to 21 percent. As for campaign materials, growth in manufacture of wearing apparel greatly increased from -11% to 8.3%, and manufacture of paper and paper products from 10.7% to 17.9 percent. Information and publishing also grew from 5.7% to 8.7 percent.
Household final consumption expenditure jumped from -4.8% growth in the first quarter of 2021 to 10.1% in the first quarter of 2022. IBON noted that this is despite the dire jobs situation, absence of wage hikes, and lack of ayuda. Household consumption spending may have also been boosted by reported massive vote-buying and even troll and social media armies, the group said.
IBON also noted that the economy will remain weak and high growth difficult to sustain as the country has suffered the second biggest economic contraction in South, East and Southeast Asia in 2020 because of the government’s protracted lockdowns and aversion to a real fiscal stimulus. Most other countries in the region who locked down less and responded to the pandemic better actually contracted less or grew more in the last two years.
The economy has probably already exhausted economic growth from opening up, said the group. The coming quarters will likely show how mismanaged pandemic response has shifted the country to a much lower growth trajectory. There are also considerable headwinds from high inflation, rising global interest rates, and the rolling back of stimulus measures worldwide.
As it is, economic output is still basically just where it was in the fourth quarter of 2019 when looking at seasonally adjusted national accounts rather than year-on-year figures which are not as comparable. This means that the government’s over-reliance on lockdowns has made the economy lose two years of output on top of additional growth if more rational public health measures had been used to contain the pandemic instead of mainly lockdowns.
Labor market trends also point to the weaknesses and unsustainability of growth, IBON added. Although there is 4.4 million in net employment creation since before the pandemic, between January 2020 and March 2022, some 2.4 million or the majority of this is merely part-time work.
By class of worker, there has actually only been 553,000 additional jobs in private establishments versus a huge 1.9 million additional self-employed and 1.3 million unpaid family workers.
IBON said that the next administration has been left with very weak foundations regardless of hype about credit ratings. Under the Duterte administration, agriculture’s share of the economy has fallen to the smallest in its entire history, while manufacturing’s share to its smallest in 70 years. Joblessness and poverty have also increased especially after the pandemic lockdowns.
The next administration can only reverse these if it lets go of the current administration’s narrow-minded obsession with abstract macro and fiscal prudence at the expense of actually strengthening domestic production.
The economic managers’ exhortation to living within one’s means is an alarming call for austerity that historically has hit social services and welfare the worst. The group said that the next administration should realign bloated infrastructure spending to more productive agricultural spending and more socially beneficial education, health, housing and cash assistance. These will improve the productivity of the economy more than grandiose and often corruption-ridden infrastructure projects.
IBON said that substantial and sustainable tax revenues can be generated for development and should be a priority if the next administration is unafraid to tax the wealth of its billionaire backers and the profits of its corporate cronies.
It would also be good if the next economic team shifts its bias from big business and foreign investment to domestic agriculture, local industry, and ordinary Filipinos. Unfortunately, this seems unlikely and we will probably just see disappointing continuity and more of the same under the next administration, said the group.