Philippine Markets Newsletter

PH Monday Macro: GDP indicates nothing about Philippine’s growth

December 11, 2023

The latest Q3 GDP print has broken its downward trend. What does this say about the Philippine economy?

Philippine Markets Newsletter:
The Monday Macro Report
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In the latest report from the Philippine Statistics Authority, the most recent quarterly GDP figures show a 5.9% growth. While this doesn’t sound like a high number, it marks a change in trend from four consecutive quarters of declining GDP growth rate.

The report highlighted key sectors driving the GDP growth, with contributions coming from wholesale and retail trade, motor vehicle and motorcycle repair (growth rate of 5.0%), finance and insurance activities (9.5%), and construction (14%).

Moreover, household final consumption expenditure, or consumer consumption, expanded by 5.0%. Other demand-side economic participants such as government final consumption and exports of goods and services also experienced growth. On the flip side, capital formation saw a contraction, along with a decrease in imports.

What does this tell us about the Philippine economy?

The 5.9% GDP growth tells us that more economic activity occurred – and that is basically it.

While GDP is a widely-used metric for assessing a country’s overall productivity, it has limitations in forecasting future performance. Essentially, it provides retrospective data, offering insights into final consumption, net exports, and spending that have already transpired.

GDP serves as a tool for investors to understand the academic defined economic cycle and short-term trends, but it falls short in predicting long-term economic growth.

Delving deeper, GDP, in essence, only quantifies the volume of economic transactions – tracking the exchange of goods and services among various economic players.

In drawing a parallel analogy, it mirrors the function of a company’s revenue account. Much like how the revenue account tells you the total earnings of a company, GDP reveals the aggregate value of economic activities within a nation.

However, just as a company’s revenue is not indicative of overall profitability, GDP falls short in indicating the holistic health and economic growth of a country. Profitability for a business involves assessing costs, operational efficiency, and sustainable growth strategies – a nuanced evaluation that transcends mere revenue figures.

In a similar vein, for a sovereign nation, relying solely on the transactional value captured by GDP to assess future growth prospects would be akin to examining a company’s revenue to pay its debt and operating expenses or invest to grow the business.

Economic expansion and sustainable development necessitate a more comprehensive understanding that encompasses factors beyond the level of transactions, such as fiscal and monetary policies, structural reforms, and the overall economic ecosystem.

Thus, just as a company must consider various metrics for strategic planning, a nation, too, requires a multifaceted approach beyond GDP to effectively invest and foster long-term economic growth.

But what is a simple metric that investors can use to measure future potential economic growth?

The answer is…..taxes.

Stay tuned for next week and we will tell you why!

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!


Angelica Lim
Research Director
Philippine Markets Newsletter
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