Sunday, May 23, 2021

BWorld 488, GDP contraction, government overspending, and non-green recovery

* My article in BusinessWorld, May 18, 2021. 

In 2020, the Philippines was the worst performing economy in Asia with a 9.6% GDP contraction. Nine East Asian economies reported their First Quarter (Q1) 2021 GDP as of this writing, and the Philippines is again the worst performing: China’s Q1 2021 GDP is 18.3%, Taiwan’s is 8.2%, Hong Kong’s 7.8%, Vietnam’s 4.5%, South Korea’s 1.8%, Singapore’s 0.2%, Malaysia’s -0.5%, Indonesia’s -0.7%, and the Philippines’s -4.2%.

There are many proposals that are supposedly meant to help the Philippines recover faster. For this piece, I will deal with two of those proposals: 1.) government spending must expand, and, 2.) there should be “green path” to recovery.

Among the Opinion pieces here in BusinessWorld arguing for (1) is “Why we need extraordinary government spending” (by Men Sta. Ana, May 16) and arguing for (2) is “How to ensure a green recovery from the pandemic” (by Nazrin Camille D. Castro, April 27).

Both arguments are wrong and not based on hard facts.

For (1), it has been done — government spending grew double-digits in 2020 and Q1 2021 but this was not enough, or government may have worsened contraction in household spending and private investments because these two constitute the largest portions of GDP (see Table 1).

Spain and the UK also did (1), their budget balance as percentage of GDP expanded four to six times: for Spain, -2.9% in 2019 to -11.5% in 2020, and for the UK, -2.3% in 2019 to -13.4% in 2020. And yet they are the worst performing countries among the world’s top 50 largest economies in 2020: Spain’s GDP was -11.0% and the UK’s GDP was -9.9% (see https://www.bworldonline.com/10-reasons-to-lift-the-lockdown/, April 26).

There is a close positive relationship between power generation and GDP growth, so if we want to propel faster and sustained economic recovery, our electricity production and power supply should rise more at competitive and cheaper prices. In Table 2, I divided the selected countries (all belong to the top 50 largest economies in the world) into group A, Europe; group B, North and South America’s largest economies, and group C, major East Asian economies.


Table 2 shows two important trends: 

One, as experienced by many countries, as the percent change in power generation declines from the 2000s to 2010s, average GDP growth also declines.

Two, European economies with low and anemic growth have a high share of wind-solar over total power generation. Conversely, Asian economies with fast growth have a low share of wind solar over total power generation.

The Philippines needs to prioritize more growth and economic dynamism, more businesses and job creation, and this is possible only with more fossil fuel use, not less. Or use nuclear power but many people are still scared of it.

Efforts to attain “net zero” carbon emission by 2050 or 2040 for the Philippines will be counter-productive and poverty expanding, not reducing. As of 2020, wind + solar + biomass combined contributed only 3.5% of total electricity generation. Geothermal + hydro contributed 17.7% of the total. So, the total RE share is 21.2% of total electricity generation. To demand that this should rise to 100% by 2050 is unrealistic and irrational.

Concerns about climate change is understandable but climate change is natural (nature made), not man-made. It is cyclical (warming-cooling) and not “unprecedented, unequivocal warming” since the planet Earth was born about 4.6 billion years ago. We do not “fight” what is naturally and cyclically occurring and, in the process, condemn our economy and people to perennial poverty.
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See also:
BWorld 485, 10 reasons to lift the lockdown, April 30, 2021 
BWorld 486, What is the optimal energy mix? May 05, 2021 
BWorld 487, Vaccination rates and lockdown, May 13, 2021.

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