If, and to the extent that, producers are not at liberty to make money by producing what consumers demand on free markets (what is called consumer sovereignty), the configuration of the number of units of goods and services produced and their prices (GDP is the name of this configuration) is basically meaningless; or, if you will, it represents what the rulers want to be produced at prices that represent the trade-offs they make—Pierre Lemieux
In this issue
Philippine Q4 and 2023’s 5.6% GDP: The Slowing Consumer Economy
I. Q4 Seasonal Strength, Lower Inflation Magnified Headline GDP
II. Q4 2023 Expenditure GDP Fueled by Aircraft Acquisition, Government Construction and Imports
III. 2023 GDP: Slowing Capital Formation, Downtrend in Consumer Spending, and Uptrend in Government Spending
IV. Industry GDP: Accommodation and Food, Financials and Transportation Powered Services Q4 and 2023 GDP
V. BSP Tightening? Share of Financial GDP Carved an All-Time High in 2023, Transport, Public Administration and Defense GDP Boom
VI. Mounting Consumer-Trade GDP Mismatch, Languishing Real Estate GDP and Mounting Concentration Risk
VII: Summary: 2023 Consumer Economy Slowdown, Despite a Surge in System Leverage
Philippine Q4 and 2023’s 5.6% GDP: The Slowing Consumer Economy
The Philippines Q4 and 2023 GDP depicts the slowing of the consumer economy and growth bias towards a few sectors, including the government.
I. Q4 Seasonal Strength, Lower Inflation Magnified Headline GDP
Inquirer.net January 31,2024: The Philippine economy grew 5.6 percent year-on-year in 2023, slower than the 7.6 percent expansion in 2022, the Philippine Statistics Authority (PSA) reported Monday. This means the Marcos administration failed to hit its growth target of 6 to 7 percent for last year…In the fourth quarter of 2023, the economy grew at an annual rate of 5.6 percent, easing from the revised 6 percent expansion in the third quarter.
Figure 1
First, the increase in nominal and real GDP in pesos, which breached the exponential trendline, reflects seasonal strength. But, unless we see sustained vigor, Q1-Q3 GDP 2024, like in the past, will likely regress to within the secondary trendline. (Figure 1, topmost chart)
Furthermore, (Nominal) NGDP grew from 9.6% in Q3 to 9.3% in Q4, exhibiting little change in the growth rate of the topline. But the current or NGDP incorporates inflation. That said, a slower inflation rate (deflator/implicit index) deducted from the NGDP magnified the "real" or headline GDP.
II. Q4 2023 Expenditure GDP Fueled by Aircraft Acquisition, Government Construction and Imports
Next, let us examine the Q4 GDP through the lens of the expenditure side.
Unlike in Q3, where government spending accounted for 36%, capital formation powered the Q4 GDP with some help from services imports. (Figure 1, middle window)
Though services imports had a 9.3% share of the GDP, its 23.9% growth buoyed real import Q4 GDP to 2.6%, reversing two-quarters of shrinkage.
In the meantime, government spending slumped from 6.7% to -1.8%, while consumer spending eked out a small gain from 5.1% in Q3 to 5.3% in Q4. (Figure 1, lowest graph)
Figure 2
Air transport GDP, which tripled (344%), possibly from the recent acquisition of new planes by domestic carrier (PAL) to expand their fleet, buoyed the Durables GDP from 1.7% in Q3 to 14.6%. Air transport carried a 6% share of the durables GDP. Durables are classified under capital formation. (Figure 2, topmost image)
Government and household construction, which registered 14.7% and 9.6% in Q4, also boosted the construction real GDP to 10.1%. Financial and non-finance construction grew by only 5.2%. (Figure 2, middle pane)
In sum, the durables (air transport) and construction sectors, helped by imports, delivered the marginal GDP in Q4.
III. 2023 GDP: Slowing Capital Formation, Downtrend in Consumer Spending, and Uptrend in Government Spending
On an annual basis, though capital formation GDP recorded a 5.4% growth in 2023, its 23.1% share of GDP in 2023 duplicated its 2022 growth rate. Capital formation climaxed in 2018, plunged in 2020, then posted a muted recovery. (Figure 2, lowest graph)
Figure 3
On the other hand, while the share of public spending peaked in 2021 at 15.3%, with its 14.3% share in 2023 remained a hair breath away. The public spending data excludes government construction spending, which shows its understatement. (Figure 3, topmost chart)
Likewise, private sector spending on political projects discounts the impact of political spending.
Conversely, the household spending share has stagnated at 73.1% in 2023, reinforcing its downtrend since 2000.
It is fascinating to see the irony of the mainstream boast about the supposed resiliency of consumer spending in the face of its long-term downtrend.
The slowing power of consumers is attributable to the crowding out effect of big government, productivity deficiency, increasing dependence on credit, and the erosion of savings.
It partially dovetails with the survey where nearly half of households see themselves as "poor."
IV. Industry GDP: Accommodation and Food, Financials and Transportation Powered Services Q4 and 2023 GDP
From the industry side, the service sector, which grew by 7.4% in Q4, delivered the gist of the "real" GDP. It was up by 7.2% in 2023.
However, the industry and agriculture sectors underperformed, posting a 3.2% and 1.4% growth in Q4 and 1.2% and 3.6% in 2023, respectively.
That manufacturing barely grew (.6% in Q4 and 1.4% in 2023) translates to increased dependence on imports. Manufacturing has the second-largest share of the GDP after trade (17.9% in 2023).
Notably, accommodation and food services (19.2%), financial services (+11.8%), transportation and storage (+9.7%), and public administration and defense (+8.6%) were the top performers in Q4. Likewise, the top 3 were 2023's biggest "real" GDP gainers: accommodation 23.4%, transport 13.1%, and financials 8.9%.
Inflation may have put a lid on consumer spending on goods at bay, but they have been "revenge spending" on staycations and dining out. (Figure 3, middle window)
Nonetheless, with foreign tourist arrivals still substantially (39%) down from its 2019 peak despite the recent rebound, local tourists have fired up the Accommodation industry. (Figure 3, lowest chart)
However, growth rates appear to be tapering (partly due to the base effect) and mostly from diminishing returns.
V. BSP Tightening? Share of Financial GDP Carved an All-Time High in 2023, Transport, Public Administration and Defense GDP Boom
The GDP doesn't reveal the source of financing for these activities.
But the financial GDP provides a clue.
Banks, non-banks, and insurance registered 13.4%, 11.4%, and 6.9% "real" growth rates in Q4. With the bank share of the financial GDP at 49%, banks provided the heft for the sector.
Ironically, the enormous gains in the bank's GDP have occurred amidst the BSP's multi-year high policy rates, which also squares with the sector's record share of the nation's financial resources—as previously discussed.
Figure 4
The share of the financial sector's GDP to the national GDP also carved an all-time high in 2023. The data tell us that BSP tightening represents a façade. (Figure 4, topmost graph)
Record consumer and public debt and over 5% money supply growth reveal the underlying accommodation or financial easing by the BSP channeled through (consumer credit) subsidies and through historic financing of the government by banks and non-bank financials.
Meanwhile, record vehicle sales, public utility vehicle modernization, and aircraft fleet expansion could have powered the outgrowth of the Transport sector's GDP. (Figure 4, middle pane)
Land transport reported a 12% GDP, water transport 4.5%, and air transport 13.5%. Land transport has a 55% share of the sector's GDP.
Though government spending shrunk on the expenditure side, public administration and defense was one of the four sectors with the highest GDP.
Public spending Q4 GDP of 8.6% was the largest since Q2 2023's 9.6%. (Figure 4, lowest chart)
With increased government spending on upgrading its defense, this could be an area where "growth" could come from. The government intends to expand its defense budget to $35 billion (Php 2 trillion) over the next decade.
Remember that "growth" in this area comes at the expense of the private sector.
VI. Mounting Consumer-Trade GDP Mismatch, Languishing Real Estate GDP and Mounting Concentration Risk
Aside from construction, what happened to the most popular sectors?
Figure 5
The trade sector's GDP was 5.2% in Q4 and 5.5% in 2023. However, its share of the GDP has been adrift at near record highs, even as consumer spending share has been on a downtrend. (Figure 5, upper graph)
The data points to the continued buildup of excess capacity or credit-financed malinvestments.
The real estate GDP continues to languish. It was up 3.9% in Q4 and 3.6% in 2023, primarily from buying and selling, leasing, and development activities. Worse, its share of the GDP (5.5%) dived in 2023 to its lowest ever. (Figure 5, lowest chart)
With about 20% loan exposure, the industry remains the largest client of the banking industry. And that comes from the "reported" data.
Figure 6
Overall, the aggregate share of the GDP of sectors supposedly comprising the consumer economy (trade, residential real estate, construction, hotel & finance) continues to hit milestone highs, which alternatively exhibits mounting concentration risks. (Figure 6, upper chart)
VII: Summary: 2023 Consumer Economy Slowdown, Despite a Surge in System Leverage
In summary, the 2023 GDP reveals that the principal non-financial sectors of the Philippine consumer economy have been slowing (consumer spending, trade, and residential real estate). The exception to this is the accommodation and food services sector. But Q4 2023 data tell us that "revenge spending" for this sector has also been decelerating (diminishing returns).
Worst, manufacturing has stagnated, which has led to increased dependence on imports.
Government spending has played a principal role in boosting the 2023 GDP via direct expenditures, construction, public administration, and defense.
The other source of expansion emanated from financials, transport, professional and business services (scientific and technical, legal, photography, etc.)
The outperformance of Financials defies the BSP's tightening (in name only).
Because the "Other services" sector represents a speck of the total, this exegesis excluded it.
Finally, as of November, system leverage (UC bank loans and public debt only, excluding capital markets, debt from FDI, and the informal economy) hit a record Php 26.5 trillion or 109% of the 2023 NGDP.
The gist is that the 2023 5.6% GDP represents leveraged growth benefiting a few sectors.
