Why government’s 2021 GDP growth target is unrevised

"I urge the economic managers to abandon the 6.5-7.5 percent GDP growth target and replace it with a more realistic pair of figures"

At the end of 2020, the administration of President Rodrigo Duterte announced a target growth rate of 6.5-7.5 percent for this country’s 2021 gross domestic product. Until a few weeks ago it was reiterating that GDP target. The National Economic and Development Authority said that it expected the Philippine economy to get out of recession mode early this year and steadily heat up as 2021 proceeded and end the year with full-recovery GDP growth.

Then came this week’s announcement that the economy contracted by 4.2 percent in the January-to-March quarter. The news almost certainly came as a shock to the economic managers; but it did not surprise those who could perceive no indications of an economic turnaround in the making. What was perceived was an economy whose vigor level was little changed from 2020, with the unemployment rate still at a very high level, businesses continuing to shut down and general business activity held down by the seemingly interminable lockdown of the economy. The best first-quarter outturn that could be expected, in the eyes of those observers, was little or no growth.

With the happening of the 4.2-percent quarterly contraction, one would expect the economic managers to make a judicious scale-down of their 2021 GDP growth target. To date, they have not done so. Why? I can think of three possible explanations.

The first is that the economic managers have doubts about the accuracy of the Philippine Statistics Authority’s GDP figures and believe that the correct figures present a more favorable picture of the Philippine economy’s performance. This is possible but unlikely because the economic managers are able to review the GDP data before they are made public. As former numbers come in, GDP data can be, and are, revised, but the changes usually are not enormous.

The second possible explanation for the government’s unwillingness to revise its 2021 GDP growth target is a sincere belief that the first-quarter contraction was just a glitch in the economy’s march toward full recovery and that the rest of the year will see an uninterrupted improvement in the economy’s performance. But with the fifth month of 2021 now approaching mid-point without any clear signs of recovery, a things-will-get-better expectation appears shaky at best.

The third possible explanation for the government’s unwillingness to revise downward its 6.5-7.5 percent 2021 GDP target is a desire to maintain the Filipino people’s hopes, or at least not dampen them. A high economic growth rate, even if somewhat unrealistic, buoys the people’s spirits, especially in gloomy times like the present. The big risk in this, of course, is the erosion of confidence in the government when targets fall for short of results.

I think that this is the more plausible explanation for the government’s reluctance to revise downward its GDP growth for this year – to, say, 3 or 4 percent.

A government clinging on to something likely to lead to its embarrassment is not a good thing. Which is why I urge the economic managers to abandon the 6.5-7.5 percent GDP growth target and replace it with a more realistic pair of figures. There is a pandemic; the Filipino people will understand.