Business World, 1 December 2015


With 6.0% gross domestic product (GDP) growth in the third quarter, the headline should have been: Philippines will miss its 2015 GDP growth target of 7.0% to 8.0%. Instead, the Aquino administration tried to put up a brave and happy face to a rather disappointing year. It is likely to miss its GDP target miserably, by 1.6 to 1.9 percentage points.

The administration put a positive spin on the third quarter’s disappointing number by saying that GDP growth is accelerating — from 5.2% in the first quarter, 5.6% (adjusted upward from 6.4) in Q2, and 6.0% in the third quarter — or a 5.6% growth for the first three quarters. The willing press just accepted the positive slant. (See table)

Planned v actual


But that’s not how to evaluate performance.

The correct way is by comparing actual GDP with the administration’s own target, which in 2015 is GDP growth of 7.0% to 8.0% or a mid-point target of 7.5%. The administration knows best — the country’s stage of development, the country’s openness (exports + imports divided by the GDP), its resource endowment, its administrative machinery, and so on. Hence, it is fair to measure its actual performance against its own target.

Assuming that growth in the first three quarters holds for the entire year, the Aquino administration would be woefully short of its growth target by almost two percentage points (1.9%), which by any measure, is a significant underperformance.

Based on the past three quarters’ growth, I forecast that the Philippine economy would grow by 5.8% in 2015. This is slightly lower than my original forecast of 5.9%. The revised forecast is based on the assumption that the economy would grow by 6.4% in the fourth quarter.

On the other hand, Economic Planning Director-General Arsenio M. Balisacan forecasts that the economy would expand by 6.9%, which would bring full-year 2015 GDP growth to 5.9%. But even that is way below the administration’s (midpoint) GDP growth target of 7.5%.

And even the 6.9% growth is on the optimistic side. Remember, the fourth quarter is almost over. What’s done in the first two months of the fourth quarter (October and November) is done.

A strong fourth quarter finish would require: first, minimal damage to agriculture as a result of the worsening El Niño phenomenon; second, a strong consumer spending; third, sustaining and accelerating public sector spending for infrastructure; and fourth, minimal drag on the economy as a result of the weak external sector.

Agricultural output for the first three quarters of 2015 is practically flat. Its contribution to GDP growth is feeble 0.03 percentage point. I see no dramatic change in the fourth quarter.

Anecdotal evidence points to weak consumer spending in the fourth quarter. Retail sales appear lukewarm. Strong last minute Christmas spending might help save the day — or perhaps it might not.

It is doubtful whether the extraordinary strong demand for road vehicles, which grew 34.6% in the third quarter, may be sustained.

Net external trade will continue to be negative in the balance of 2015 and the full year of 2016. The world economy is facing imminent slowdown. China, the second biggest economy in the world is decelerating. Japan, the third biggest economy in the world, is in recession. Practically all the oil-producing countries in the world are facing recession, if not already in one.

The war in some Middle Eastern countries continues. Europe is facing another round of recession.

Fortunately for us, as the world economy grapples with all these uncertainties, we have the option to do so many things to keep up with our Association of Southeast Asian Nations-6 neighbors. The challenges we face are herculean but doable: we have to fix our crumbling infrastructure, modernize agriculture, invest in human capital, and streamline the bureaucracy.

Clearly, it requires an administration that can budget well, prioritize programs and projects, and execute them on time. Luckily, for the Filipino people, the present inept, ineffectual, and uncaring administration is on its way out.


The above-mentioned headwinds (recession, uncertainties in the Middle East and Europe) are not going away soon. There is an even change that they could intensify in 2016.

At the same time, there is no certainty that public infrastructure spending in 2016 will be significantly better than in 2015. There is a ban on infrastructure spending before and after the May 2016 elections. Predictably, the next President would need a few quarters after he assumes office (effectively July 1, 2016) to be able to move infrastructure spending in a significant way.

For 2016, my best forecast is that the Philippine economy will grow by 6.2%, 1.3% lower than the mid-point official GDP growth target of 7.5%