"Forecasting is a difficult job."
No sooner had the government placed the economy under the first of three ECQs (enhanced community quarantine) than economic managers and economists here and abroad started to produce forecasts as to (1) whether the Philippine economy could avert recession in 2020, (2) how much GDP (gross domestic product) loss, if any, there would be in 2020 and (3) what the economy’s 2021 GDP prospects were.
Necessarily, the forecasters went about their work on the basis of four parameters, viz., the quality of the government’s program for dealing with the COVID-19 pandemic, the likelihood of need for further ECQs or other kinds of community quarantine, adequate and timely fiscal intervention by the government and an adequate and efficient vaccine roll-out program. The economic managers and economists obviously believed that the observance of these parameters could be relied upon, considering that they proceeded to turn out forecasts that at best can be described as rather sanguine and at worst can be described as somewhat unrealistic.
Almost all of the domestic and foreign forecasters Philippine GDP growth in 2020 spoke of moderate, less-than-severe contraction of the Philippine economy as a result of the yearlong quarantine that began on March 16, 2020. As things turned out, the economy contracted by a disastrous 9.6 percent.
As for 2021, most of the economists have produced forecasts of 2021 Philippine GDP growth ranging from 6 percent to 7.5 percent (versus the government’s downward-revised 6-7 percent); at the start of the year the forecasts of about a dozen major institutions averaged 6.5 percent. Those forecasts were quickly thrown off-kilter by the economy’s 4.2 percent contraction in the first quarter. And the second-quarter outturn provided little compensation for the first-quarter loss.
Lately the forecasters have been running for cover. Although a few hardy souls are still clinging to the idea of 2021 Philippine GDP growth of 5 percent and above, most forecasts now speak of 2021 growth in the 4-5 percent area. The economists of the World Bank and the Asian Development Bank are now talking of 2021 Philippine GDP growth of 4.7 percent and 4.5 percent, respectively.
Economic forecasting, especially forecasting an economy’s performance is not easy; it is a very difficult job. This is why one should not be hard on people who get their economic forecasts wrong and have to undertake revisions—especially drastic revisions —of their numbers.
Nonetheless, it bears saying that economic forecasters must be very careful about their choice of parameters. In the case of the Philippine economy’s performance during the present pandemic, the forecasters, in deciding on their forecast numbers, should have given due consideration to (1) the fact that the government has been unable to get its act together as far as testing and contact tracing are concerned, (2) the fact that repeated lockdowns likely would be necessary, with all the implications of this for production, incomes and demand, (3) the fact that the government was doing a bad job of procuring and rolling out vaccines and (4) the fact that the government was less than totally committed to providing a fiscal cushion for the economy.
Without the parameters not operating as expected, there was no way that the economic forecasters could come up with the right numbers. And so they have had to effect the needed downward corrections.
In today’s more realistic, less exuberant economic environment, forecasting 2021 Philippine GDP growth of 4-5 percent appears to have become the norm. With the lingering effects of the continuing lockdown, the unsatisfactory pace of the vaccine rollout and the exhaustion of the government’s fiscal-support program, around 4 percent growth is probably the safest forecast for the Philippine economy’s performance this year.