Vote wisely because the GDP growth slowdown will hit your wallet 1

Vote wisely because the GDP growth slowdown will hit your wallet

Aneth Ng-Lim

Posted at May 13 2019 02:29 PM

With all the campaign noise these past weeks for Monday’s election, some of you may have missed this news: the Philippines’ GDP growth is down to 5.6 percent in the first quarter of 2019.

While the slowdown did not come as a surprise to economists and analysts who released their forecasts months ago, the sharp decline was unexpected. GDP was predicted to be within the range of 7 percent, with the government looking at a more conservative 6 percent.

At 5.6 percent, the first quarter GDP is our lowest since the 5 percent recorded in the first quarter of 2015.

They point to the delay in the approval of national budget as the main culprit, as this resulted in the suspension of several government infrastructure projects.

Gross domestic product or GDP can be a mouthful to the common Juan or Juana, but this is not just the concern of the government or the market analysts. A lower GDP will hurt the spending power of every Filipino. So, let’s break this down and learn some simple but very useful economics.

 #1 Let’s do the GDP math

Just how is GDP calculated? One simple way is to add up the spending by the different groups that participate in the economy. This actually makes it a fair representation because the slowdown in the construction sector can be offset by the growth in agriculture.

A country's GDP can be computed as a measure of (1) consumer spending plus (2) business investment and (3) government spending as well as its (4) net exports, which is just exports minus imports.

According to the Philippine Statistic Authority, GDP in the first quarter of 2019 is much slower than the 6.5 percent growth recorded in the first quarter of 2018.

The main drivers of growth were trade and repair of motor vehicles, motorcycles; personal and household goods; manufacturing; and financial intermediation. If we look at the major economic sectors, Services had the fastest growth with 7 percent. Industry followed with a growth of 4.4 percent. Agriculture, hunting, forestry and fishing had a growth of 0.8 percent.

 #2 GDP and your work (and pay) prospects

GDP is one of the main indicators used to measure the performance of a country’s economy. It is the estimated value of goods and services produced in a certain time frame.

We all want to see a higher GDP as this translates to a healthier economy. Because businesses will expand to meet the needs of the growing economy, they will hire more people (so lower unemployment) and pay them better too (higher wages because they will compete for quality labor).

So a poor GDP growth means less production of goods and services with lesser employment opportunities. The government vowed to "catch-up" in the coming months so the year’s GDP will still end up in their forecast range of 6 percent to 7 percent, although most likely at the lower range.

#3 GDP and the (weaker) peso

Did you know that GDP can also impact currency value? Analysts have tracked that when a country releases its GDP data, its currency can appreciate or depreciate as a result of it. This trend holds true with both developed and developing countries.

Maybe there is no factual basis for the correlation, as currency traders who want to stay ahead of the curve can be easily spooked. A lower GDP may cause them to undervalue a country’s currency. Factual or not, the trends according to global economists show a higher GDP can only strengthen the currency of a county.

#4 GDP and (the fears of) recession

Another negative impact of poor GDP growth is recession.

In its textbook definition, recession means a drop in GDP in two successive quarters. So the pressure is on for the country’s economic managers to reverse the trend started in the first quarter. Sometimes, the fear of a recession can be worse that a real recession.

During this period of temporary economic decline, most businesses scale back and wait for things to get better. That means trade and industrial activity are reduced, you may see layoffs and underemployment, and declining business revenues and consumer spending. 

 #5 GDP and inflation
Whether a lower GDP leads to recession or not, it will impact the earning potential of people. Employers are less likely to give bonuses or award pay increases when GDP is down or negative.

This brings us to the problem of inflation. We previously tackled how an increase in inflation (which means prices of goods and services have risen) can hurt your wallet. With an increase in inflation, your money can buy you less goods and services, which reduces consumption and therefore GDP decreases further. Based on this, it appears that GDP is negatively related to inflation.

Also in general, a GDP decline impacts sentiments of consumers, businesses and investors negatively.

When good intentions are not enough

And while the economists and economic managers have yet to create a formula around political leadership and healthier GDP, I do not believe in tempting fate.

So let me appeal to you to please vote wisely today. Consider a candidate’s track record especially if he or she is seeking re-election. How about credentials? Do not write their name on the ballot simply because they are easier to remember and sounds like their great-grandfather or a celebrity. Their passion for public service is another key criteria. Do they plan to run their public office and still do something else, like a movie or two on the side?

The Gates Foundation is the wealthiest private foundation in the world with an endowment of over $50 billion. In a previous interview, Melinda Gates said something that I thought is relevant here. She said good intentions are not enough, and I believe most political candidates run for office with good intentions.

The foundation’s CEO Susan Desmond-Hellman echoed this when she wrote: “Meaningful change isn’t created by good intentions alone. No matter your passion, if you want to have a big impact, you must be armed with evidence and the resolve to make informed decisions and difficult trade-offs.”

I pray you will write down the names of women and men that have the courage to make a better Philippines happen.

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.