What a 6.2% GDP growth means?

The Statistical Office and the National Economic Development Authority of the Philippines announced disappointingly last week that the Philippine economy or the Gross Domestic Product (GDP) grew by 6.2% in 2018 over that of last year. The expected higher growth rate for the last quarter of 2018 came in at 6.1% bringing the whole year average to just 6.2%. This was lower than the 6.7% GDP growth in 2017, and below the low end 7% target of the government, but still puts us among the fastest growing economies in the world, just behind India, Vietnam, and China. This is also the 14th year that we have grown the economy at more than 6% annually.

There are other national measures of economic well-being like the Gross Happiness Index and measures that inputs wealth distribution in a country, but still the GDP is the most used and easily measurable. Coupled with the adjustments of “purchasing power parity,” economic well-being on a per capita is discernable using the GDP amounts and its growth rates. GDP is the total value of all the goods and services produced in the country from the production and consumption side. Over the years the gathering of this information has improved a lot that probably only domestic labor services in the households are not strictly recorded, but would probably be accounted for in the consumption side as part of domestic expenditures when domestic helpers buy goods with their salaries. To remove the inflation factor in the GDP computation, the quarterly and annual figures are deflated to a “base year” to make them comparable. So, the GDP amounts and the growth rates are in “real terms” factoring out the price increases.

The GDP growth figures are also broken down into which sectors contributed to the growth. In 2018, the 6.2% growth comprised of Services at 3.8%, Manufacturing at 2.3% and Agriculture at .1%. Natural calamities and government inefficiencies (particularly in the rice supply), was the culprit in the low agricultural production. Higher inflation due to the new taxes and the rise in fuel prices also dampened private consumption. Then international trade problems particularly between US and China slowed down our exports at a time when we were importing massive capital goods for the governments “Build, build, build” projects and the private sectors capital investments.

Private economic forecasting companies, fund managers and some bank economists are predicting that the GDP growth of the Philippines will probably not go beyond the 6% to 6.5% growth range in 2019. They ascribe this to the lost momentum of the economy in 2018 brought about by the high inflation and the consequent higher interest rates, the weak exports which affect our balance of trade and balance of payments, and the weakened business and political environment. On the other hand, our government economists and finance officials are banking on the increased revenues from taxation and foreign funding for the massive infrastructure spending to jumpstart the economy in 2019 and 2020. Then, there is the election spending that will be in the second quarter of 2019 which usually adds a 1% growth to the economy. Given these contrasting forecasts, it would be prudent to take the middle ground of a 6.5% GDP growth in 2019.

But what does GDP growth mean to the ordinary Filipinos? A 6% growth means a slight increase in salaries and a little more job availability to the working class. To those below the poverty line, a little more lifeline assistance from the government. To the middle class and the enlightened upper class, a little more hope that we can get our act together. To be able to make significant and great achievements to reduce poverty levels and widen economic inclusion, we have to grow our economy by 9% to 11% annually for 10 years like China did in the last 20 years.