Winners and losers in PH 2020 economy—explained in 5 charts

You must have already seen the news that Philippine Gross Domestic Product or GDP declined by 9.5% in 2020. This is the worst economic performance since 1947 since the country started tracking GDP data. What exactly does that mean?

GDP is essentially a measurement tool that is used to track the level of economic activity in a country. Simply put, it is the sum of all transactions at a given time. There are two ways to measure it: (1) the expenditure approach, which sums up all the spending of different sectors in the economy, and (2) the income approach, which adds up all the income of different actors in the economy.

Transport and real estate sectors sustained losses.

Chart #1: Philippine 2020 GDP by Expenditure

Winner: Well, relative to all the others, you can say that Household Consumption is recovering faster, only down 7% in the 4^th Quarter compared to previous period last year. People’s total spending in the 4^th Quarter picked up to hit Php3.6 trillion from its lowest point in the 2^nd Quarter when the whole country was almost in complete lockdown and household consumption spending went down 15% year-on-year. We should thank the Filipinos’ strong Christmas spirit for that.

Loser: The same holiday cheer didn’t seem to charm Business Investments, Exports, and Government Spending. Business Investments reached Php994 billion in the 4^th Quarter which is only as high as its 2015 levels, this can only mean that business continues to be pessimistic about the economic recovery. Exports reached only Php1.1 trillion in the 4^th Quarter, only as good as its 2017 performance. Government Spending which was supposed to save the day, unfortunately could not sustain its peak of Php853 billion in the 2^nd Quarter. It went down to Php633 billion in the 4^th Quarter, not a significant increase from its usual levels in the past years considering everybody was expecting it to make up for the declines in the other sectors.

Even the holiday spirit couldn’t pull up spending on alcoholic beverages and tobacco.

Spending on Food and Non-Alcoholic Beverages in 4^th Quarter drove much of the recovery—proving that not even a pandemic could stop holiday festivities

Chart #2: Breakdown of 2020 Household Consumption Expenditure

Winner: Household Consumption did recover faster by the 4^th Quarter but this was not felt across all categories. Spending on Food and Non-Alcoholic Beverages in the 4^th Quarter drove much of the recovery at Php1.4 trillion, higher than previous years—proving that not even a pandemic could stop the holiday festivities. Housing and utilities, as well as Household Furnishings, reached Php430 billion and Php107 billion, respectively, in the 4^th Quarter, beating its pre-pandemic quarterly average—a testament perhaps to the fact that everyone is mostly just staying at home. Spending in Health and Communication are also much higher than in the past reaching Php137 billion and Php113 billion, respectively in the 4^th Quarter, not surprising given the pandemic and that most of our lives are now spent online (work, education, commerce, entertainment, reunions). Clothing and footwear recovered in the 4^th Quarter at Php70 billion, just in time for gift giving, after crashing to Php36 billion and Php52 billion in the previous two quarters— its worst performance in a decade.

Loser: Spending for Transport and Restaurants and Hotels dropped significantly since the 2^nd Quarter and recovery has been very slow. Transport dropped 60% in the 2^nd Quarter year-on-year, 35% in the 3^rd Quarter, and was still down 31% in the 4^th Quarter at Php239 billion. Restaurant and Hotels are posting much slower recovery with 2^nd Quarter figures down 66% year-on-year, 52% in the 3^rd Quarter and 42% in the 4^th Quarter at Php214 billion. Education was also lower in the 4^th Quarter than its pre-pandemic levels at Php178 billion, consistent with the decline in private school enrollment. Even the holiday spirit couldn’t pull up spending on Alcoholic Beverages and Tobacco, and Recreation Culture, which usually peak in the 4^th Quarter. It reached only Php73 billion and Php47 billion, respectively, which are the lowest 4^th Quarter spending levels in a decade for both sectors.

Food Services and Arts, Entertainment and Recreation were down 43% and 55% from 4th Quarter last year. Combined, these sectors employ around 8 million or 20% of the labor force.

Chart #3: Philippine 2020 GDP by Income

Winner: Based on industry income data, Services, Manufacturing, Agriculture, Mining and Quarrying and Electricity, Steam, Water and Waste Management were able to recover in the 4^th Quarter almost achieving or exceeding their pre-pandemic levels. In the 4^th Quarter, Services reached Php2.8 trillion, while Manufacturing hit Php974 billion. Further details of these two sectors are given below. Agriculture was at Php519 billion in the 4^th Quarter, slightly lower than previous years’ last quarter performance by at least 3% because of the typhoons but still respectable considering steeper declines in other sectors. Mining and Quarrying and Electricity, Steam, Water and Waste Management were close to their pre-pandemic quarterly average in the 4^th Quarter, at Php30 billion and Php143 billion, respectively.

Loser: Private and Public Construction continued to underperform in the 4^th Quarter. Private Construction reached only Php384 billion, the worst last quarter performance since 2013. This is already coming from the record lows in the 2^nd and 3^rd Quarter. Business and household pessimism is holding back recovery. Public Construction, which everyone was hoping would make up for the decline in Private Construction, posted a 4^th Quarter value of only Php219 billion, even lower by 15% than what it achieved 2019. Government has more catching up to do if we’re pinning all our hopes of an economic bounce back on Public Construction.

Agriculture, mining were able to recover in 4th Quarter.

Chart #4: Breakdown of 2020 Services Income

Winner: The uptick in Services mostly came from Wholesale and Retail Trade, and Financial and Insurance Activities. Employing 8.3 million Filipinos, Wholesale and Retail Trade, although still down 4% from 4^th quarter last year, came back strong in the 4^th Quarter at Php945 million after hitting historic lows in the preview two quarters, likely propelled by the increase in consumption due to the Christmas season. On the other hand, Financial and Insurance Activities barely took a hit during the pandemic and was up 4% from 4^th quarter last year but its resilience is felt only by a few since employment in the sector is only at around 600,000. Public Administration and Defense, Information and Communication and Human Health and Social Activities also contributed to the 4^th Quarter resurgence of Services.

Loser: Real Estate led the losses in Services at only Php257 billion in the 4^th Quarter, still down 15% year-on-year. Professional and Business Services at Php283 billion, Education at Php153 billion, and Transportation and Storage at Php135 billion followed with 4^th Quarter year-on-year losses of 9%, 15% and 21%, respectively. Significant losses were incurred by Accommodation and Food Services and Arts, Entertainment and Recreation, which were down 43% and 55% from 4^th Quarter last year. Combined, these sectors, employ around 8 million or 20% of the labor force.

Transport and real estate sectors sustained losses.

Chart #5: Breakdown of 2020 Manufacturing Income

Winner: Manufacturing was pulled up by the 4^th Quarter recovery of Food and Beverage which was only slightly down 2% year-on-year at Php540 billion and Chemicals which was up 9% year-on-year at Php162 billion.

Loser: Computer and Electronics, Transport, Machinery and Electrical Equipment, and Textiles, Apparel and Footwear were all below their pre-pandemic performance.

Agriculture, mining were able to recover in 4th Quarter.

What does 2021 bring?

Will there be a strong recovery in 2021? That would entail the winners in 2020 maintaining or accelerating their momentum, and the losers reversing their declines.

Food Services and Arts, Entertainment and Recreation were down 43% and 55% from 4th Quarter last year. Combined, these sectors employ around 8 million or 20% of the labor force.

Look for early signs for the following:

• Will Household Spending continue to improve even after the holiday spending spree, especially resumption of travel and eating out?

• Will Government decide to spend more heavily to mitigate the transmission of the virus, rollout a credible vaccination program, open schools safely, and resolve the bottlenecks in public construction?

• Will Businesses become more confident of near-term economic prospects and resume expansion plans—building more facilities, expanding their inventories and acquiring more equipment?

• Will Export of electronics and consumer goods reverse their decline due to increase in orders from abroad amid economic recovery in key developed markets?

Clothing and footwear recovered in 4th Quarter at Php70 billion, just in time for gift giving, after crashing to Php36 billion and Php52 billion in previous two quarters— its worst performance in a decade.