The unimpressive Aquino economy

Ben D. Kritz

Ben D. Kritz

ONE of the enduring debates concerning the performance of the regime of President B.S. Aq uino 3rd is whether or not his claims of being responsible for the Philippines’ healthy economic performance are at all justified.

The President and his dwindling number of uncritical supporters have, of course, consistently attributed the Philippines’ healthy economic growth to his “good governance,” but treat the notion as an article of faith; clear relationships between government activity and positive economic growth are not obvious, and so are difficult to describe in audience-friendly terms.

Likewise, when economic indicators are not as favorable as anticipated, as with the unexpectedly low gross domestic product (GDP) growth in the first quarter of this year, the downturn is explained away as a “slowdown in government spending.”

The Philippine economy is growing, and growing at a robust pace. Even though Q1’s 5.2-percent GDP growth rate surprised everyone—it was about one percentage point lower than the least optimistic analyst estimate—a growth rate above 5 percent is still rather admirable; as a comparison, the US economy contracted by 0.7 percent in the first quarter. But the consensus among people who actually know what they’re talking about—economists, financial market analysts, and bankers—growth under Aquino is largely coincidental; as one investment banker recently commented, the Philippines’ “economic miracle” has much less to do with deliberate action than it does the country’s ability to make the most of ‘tailwinds’ from favorable global circumstances.

GDP data is collected on a quarterly basis, with the fiscal quarters corresponding to the four quarters of the calendar year. To compensate for changing prices, “real” GDP is expressed in terms of prices from a baseline year; the year 2000, in the Philippines’ case. In technical terms, real GDP is determined by applying a “deflator” to the current “nominal” GDP; this allows comparisons on a common scale between different years or quarters. The particular time parameters used by the Philippines in measuring GDP are quite conventional, and as such are useful because they make it possible to accurately track the economy’s performance over a long period, and make it easier to compare the Philippines’ economic performance with that of other countries.

That arrangement of the data, however, makes it difficult to accurately assess the performance of the economy under Aquino specifically, its progress since he took office at the end of June 2010. In order to do that, we need to be a little creative with our perception of time.

Aquino’s presidency was inaugurated on June 30, 2010, the last day of the second quarter of that year. So, the nominal GDP at that point in time becomes Aquino’s constant, effectively, and makes the fiscal year that begins with Q2 2010 and ends with Q1 2011 his baseline year. With the calendar, thus, shifted forward one quarter, a couple of interesting trends emerge, as illustrated by the accompanying charts.

The first thing that becomes apparent is that, using the quarterly GDP data as provided by the Philippine Statistics Authority, the new fiscal year creates a higher nominal GDP growth rate than the official print, ranging from 7.3 percent in 2011 to a high of 9.3 percent in 2013, then down again slightly at 8.6 percent last year (which on our fiscal calendar ended with the first quarter of this year). For comparison, the official GDP growth rates for the ‘normal’ calendar years 2011, 2013, and 2014 were 3.7 percent, 7.2 percent, and 6.1 percent, respectively.

The second thing one notices is that real GDP measured from the 2010 constant—for the sake of brevity, hereafter called “Aquino GDP”—diverges from nominal GDP at a more gradual rate than the official figure derived from the year 2000 constant. That suggests two things: First, that means that price inflation has been fairly moderate over the last four years—evidence, perhaps, of one of those economic ‘tailwinds.’ Second, it may indicate that the 15-year-old price constant is no longer useful, and needs to be revised.

The biggest revelation, however, is how unimpressive economic growth in real terms under Aquino has actually been (lower chart). “Aquino GDP” growth has trailed the officially reported results by 2 percent to as much as 5.5 percent, and appears to have peaked at 7.2 percent in 2013. One conclusion that can be drawn from all this is that although the official GDP data is technically correct, it does not accurately reflect actual growth, overstating it to a significant degree.

It bears repeating, correlation is not cause; looking at the GDP data in this new way does not actually connect the actions of the president or his administration to measureable changes in the GDP growth rate any more than Aquino’s vague claims of being responsible for growth do. And again, positive GDP growth is what it is; even if under Aquino it has not been quite so positive as his spokespeople would have us believe, and now appears to be in a downturn.

The government for its part is confident it can reverse the trend, although it is yet to actually attempt to do so, by improving government spending, first by spending more, and second, by directing that spending toward value-added infrastructure. With elections in just under a year, most observers are still assuming that will happen, despite three years of empty promises; whether or not it actually does remains to be seen.


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