The real test of economic growth

MORE THAN THE GDP GROWTH NUMBERS, the real test of Economic Growth is whether such growth is equitable.

That is what is actually meant by the words “inclusive growth”. Does economic growth benefit Juan de la Cruz or ONLY those living only inside gated subdivisions and high-rise plush condominiums and townhouses?

“Inclusive growth” is a valid goal for a country because social inequality breeds poverty and discontent which, in turn, provide the powder keg materials for criminality and revolution.

That is the reason the Duterte Government aims at a 6.5- 7.5% GDP growth rate up to the year 2022 so that this can bring the Poverty Rate in the nation by 2% every year -reaching a low level of only 16% by the year 2022.

The task is daunting.

For instance, the Philippine Statistics Authority posited that the respectable 6.5% GDP growth rate in the second quarter of 2017 only resulted in a 5% increase in the per capita income of the average Filipino.

So, if one assumes P100,000 is the per annum per capita income of the average Juan de la Cruz, the “impressive “ 6.5% GDP rate only manages to raise his annual income by a mere P5.000 per year. Not very much, really, for a family of five.

There is not even a “one to one correspondence” between GDP growth rate and the increase in per capita income.

But make no mistake about it either. In terms of nominal GDP, the Philippines may be Third World now – but it is actually the 34th largest global economy, the 13th in Asia and the 3rd in the ASEAN just behind (200 million population) Indonesia and (tourist-popular) Thailand.

Currently, the Philippines has a purchasing power capability of US$878-B. One other statistics said it will take a huge US$290-B increased growth in this consumption -driven economy for the Philippines to achieve an 8% GDP growth rate.

That’s a tall order.

One amulet the Duterte Budget Department —through the able Benjamin Diokno found as an antidote to the previous administration’s generally cautious ”under spending” policy is a “golden age of infrastructure” – to usher work in the countrysides, a competitive infrastructure for foreign investors and development of the rural economy.

But that is anchored on the approval “in toto” of the proposed Comprehensive Tax Reform Program Part I which could face rough sailing in the independent Senate. Palace allies are already hinting of a presidential veto if the Senate becomes bull-headed. What would happen?

Government spending in the 2nd quarter drove (G) in the GDP component to move up by 7.1% but Investment (capital formation largely from the private sector) slipped to just an 8.7% growth in the 2nd quarter compared to 10.6% in the lst Quarter.

However, a recent survey seemed to indicate that private businesses are holding their horses in the third quarter- both in capital formation and construction activities- which may dampen the targeted growth of 6.5-7.5% targeted 2017 GDP growth rate.

The way things are going, we forecast that RP should report a mere 6.8% GDP growth rate for the entire year of 2017.

The foreign exchange rate of the Philippine peso has been flirting with the P52: US$1 parity of late, although one can argue this is mainly due to the interest rate increases obtaining in the USA. And the general recovery of the American economy from the 2008 disaster.

Our dollar reserves -though still at an all-time high, is not being augmented as robustly as in previous quarters in absolute dollar growth.

Also- in the 2nd quarter, Exports and Imports grew by 19.7% and 18.7% respectively. But since we do import more than we export- so some deterioration on our trade dollar flows can be noted.

On the other hand, some strong winds seem to buffet the sails of the third highest dollar earning sector in the country, the BPO industry, which is second only to the OFW remittances.

Some of the points in the tax reform program are the removal of some fiscal incentives given to locators of the BPO business here -which may drive them away from our shores. This is to say nothing about the American president threating to “tax heavily” American firms siphoning local jobs to abroad like the BPO locators.

On balance, however, the peso at P52 exchange will be good for exporters, OFWs, and Tourism. But what about our importation, foreign-denominated debt and oil bills are they smaller than our inflows?

However, at the vortex of the fall of the peso is BSP Governor Nestor Espenilla who dispelled any panic over the development. He calmly says every peso deterioration of the peso ( say from P51 to P52) only causes a tiny O.15 or 0.2 percentage impact on inflation (price of goods and services).

And inflation has been, since former BSP Governor Shay Tetangco’s time, used as the bench mark to increase interest rates in the country. (By Bingo P. Dejaresco)