[ANALYSIS] GDP growth and the dead cat bounce

The recent ballyhooed gross domestic product (GDP) growth reminiscent of a time nearly half a century long gone – though resurrected under circumstances that some would rather forget or are forced to remember – might be described as a “dead cat bounce.” This gruesome and graphic term is part of the jargon of investments, equities, and capital market trading. It refers to an immediate and temporary rise in the value of an asset, typically a listed stock or an investment that has fallen in value and remained at deeply negative levels.

To understand the term, imagine a dead cat dropped from dizzying heights. When it hits the ground, it will tend to bounce upwards but only momentarily.

Allow us to break down the imagery, meanwhile alluding to the value of an investment, or as we have chosen, the Philippine economy’s GDP.

First, there is a steep decline, a fall from a height enough that the cat, despite its agility, is killed or is dead in the first place. Hence the concept of a long fall or a substantial decline. Since we are merely using imagery to describe GDP values, think of where our GDP had wallowed in prior years.

In 2019, GDP was P19.38 trillion. It was P18.53 trillion in 2021, but its lowest level in this last half decade was P17.53 trillion in 2020.

Now imagine that the decline or fall is halted. The direction the cat takes changes. It bounces, though the upward movement is extremely short and fleeting. Apply this bounce to a stock long under par. Apply the same to our GDP where the recent growth is the upward movement caused by the bounce. In 2022, GDP rebounded to the pre-pandemic level of P19.94 trillion.

Now sum up all the values from the steep decline plus the brief positive values derived from any rebound. By doing the math, applying vectors, measuring values from the fall and the ratio of the momentary bounce, we can see that the dead cat bounce of our GDP from 2019 merely yields P564 million or a 2.38% change. Given the inflation rates throughout those five years, especially those recently inflicted from the middle of 2022, the dead cat bounce would probably yield a net negative loss.

Deceptive growth

The reality of deceptive growth statistics is aggravated by the delicate dance between inflation and GDP. This regime of high inflation, along with fears of even higher prices and the natural albeit belated reflex post-pandemic aggregate demand tsunami may have catalyzed GDP growth since household spending is a principal GDP driver. The growth we see may indeed be the result of incompetent economic management rather than competence.

Therefore, it would be reckless to simply look at the growth numbers without looking at the peso values from which these are derived. Naturally a steep growth number would be derived if the base number was extremely low.

In this five-year series since 2019, the deepest GDP trough was in 2020 when GDP was P17.53 trillion. Any declaration of growth would be misleading and even deceptive if it did not consider such lower baselines plus the effect of depreciating values in a milieu of uncontrollable inflation. This is even more critical given the prospects of growth’s sustainability where global recession is set as a larger backdrop while the Philippines remains inflicted with high double-digit underemployment, a recent uptick in unemployment as 2022 ended, continuing inequity, 49% self-rated poverty, absurd food shortages that compel expensive importations, and the highest food and energy inflation in the region.

To the public, it is those numbers that constitute their reality. GDP growth figures that they do not understand much less feel especially where these are not validated by their own reality mean little save as glitter garnished over garbage.

Do the math to validate the recent growth figures. Pray that the bounce is sustainable. But do not forget the rather unavoidable and unfortunate element of this allegory. Despite the bounce, the cat is still dead. – Rappler.com

Dean de la Paz is a former investment banker and managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance, and Mathematics professor. He collects Godzilla figures and antique tin robots.