Dear Editor,
Please allow me the opportunity to reply to Mr M Maxwell’s letter to the editor, carried in Stabroek News, February 1. In his letter, Mr Maxwell queried the achievement of the eventual growth rate of 3.0 per cent, given that the measured estimation of growth at the half-year was just 0.7 per cent. He has referred to the end of year growth as a stunning claim, and has underpinned his arguments with references to the continued softening of prices in the overseas markets for our main export commodities (a real fact), which, if I interpret him correctly, defies logic that there could be growth in production in these particular sectors of output.
Mr Maxwell then proceeded to estimate the growth for the whole year by a spurious method utilizing a simple average of the economy’s growth in the two consecutive periods within the calendar year, H1 (January to June) and H2 (July to December). As a result, he erroneously concluded that if a growth rate of 0.7% was achieved in H1 then growth in H2 had to be 5.3%, in order for the growth year for the whole year to be 3.0%.
Firstly, let me say unequivocally that the growth rate is not additive. Therefore, the growth rate for 2015 can never be the average of the sum of the growth rates for the two halves of the year. The growth rate is a quantum measure of activity, that is, the production of all goods and services by all sectors within a specified period of time. For the measurement of that quantum growth, the price element is completely neutralised (elimination of all price movements and fluctuations that affect current revenue earnings of our commodity and services outputs).
Growth in the economy is measured period upon period, that is, the economic performance of H1 2015 is measured against H1 2014, the performance of H2 2015 against H2 2014 and Whole Year (WY) 2015 against WY 2014. H2 2015 cannot be measured straight-line against H1 2015. The profiles of activity within each calendar year dictate that different periods of the year have different intensity of activity and output and, as a consequence, different ‘weights’ or ‘impacts’ on the eventual sectoral contributions to overall Gross Domestic Output and Gross Value Added.
The simple reality of this was that economic performance, and growth or recovery in the second half of 2015, was driven by some of the heavier-weighted sectors in the Gross Domestic Product Profile, in particular gold, construction, wholesale and retail trade, transportation and storage sectors, information and communication.
Secondly, Guyana’s economy is characterized by the seasonality of economic performance within sectors. Thus, the economy does not perform at one pace throughout the year, and historically and traditionally, the first half of the year contributes less to overall growth relative to the second half. This fact is well known to all with just a cursory interest in the peculiarities of our economy. Let me amplify some more: consumption is still a major variable that drives the performance and level of our output. But, as said before, our economy is defined by seasonality that determines economic activity and output in our primary producing sectors, in our trade flows, in our consumer spending, in our investment flows.
For maybe a decade or more, the economy had been attuned to the presentation of a National Budget in March, the passage in mid-April and the commencement of major government expenditure in late April/early May. The presentation and approval of the budget was, therefore, used as a barometer for consumer and business decisions, which affected the economy in both the first and second halves of the year. As a consequence, the period January to March is probably the slowest period of the year, largely due to consumers’ and businesses’ speculations on the possible provisions in the national budget, which could affect their economic decisions and quality of life.
Concurrently, economic growth performance in Guyana’s economy is dependent on the performance of its traditional industries ‒ sugar, rice, bauxite, gold, forestry ‒ and, more recently, construction, financial services, wholesale and retail trade, transport, and communication. In the first quarter of each year, the production of rice and sugar commences towards the end of February or early March, while government capital projects would start after approval of the National Budget. The realization of a lower economic output and growth rate in the first half of the year, relative to the second half, is, therefore, self-evident.
What is explained above is the profile for a ‘normal’ year, that is, a March budget, April approval of budget, major government spending commencing late April/early May, and accelerated private business activity, consumer spending and trade from the second half of the year. However, 2015 was an ‘abnormal’ year, because everything above was further impeded by the announcement and holding of a national election in May, with resultant increased consumer and business self-imposed restraints for a much longer period. This was compounded by the late presentation of Budget 2015 in August relative to the more traditional March. The reporting of a dampened 0.7% growth rate for the first half of 2015 was, therefore, consistent with expectations.
Reference has also been made in the letter ‒ and in the editorial of the same date ‒ to the worrisome spectre of deflation, measured at -0.2% at the half and -1.8% at end-of-year. There has been a total misinterpretation by the author to the actual situation in the movement (in this instance, the continuous slide in the level of prices) as measured by the Consumer Price Index (CPI). I admit that I would have been indeed worried if the CPI had slid by a further 1.6 percentage points from end of June to end of December. No such phenomenon occurred. Inflation, as measured by the movements in the CPI is measured point to point or end-of-period to end-of-period. When the Minister of Finance reported, in his half-year Report 2015, a negative inflation (or deflation) of -0.2%, he was referring to the annualized rate of change in the Index between June 2014 and June 2015. The author quoted Minister’s paragraph 3:14 of the budget speech: “Deflation persisted throughout the year and by end December had been recorded at -1.8%.” What is referred to here (in the identical method of point-to-point measurement) is the movement in the CPI between December 2014 and December 2015, which showed deflation of -1.8%. If an attempt is made to draw a conclusion on what obtained in price movements between June 2015 and December 2015, then a reference to the Index at those two points in time would first have to be made. Such reference would show that there was almost no movement, barring some marginal fluctuations between July to September, in the overall level of the Index. I quote the CPI measurement to underscore my point: Jun 2014, 112.13; Dec 2014, 113.94; Jun 2015 111.91; Dec 2015’ 111.87
Further, as a proxy of consumers’ willingness to spend, the imports of consumer goods by the business sector in 2015, progressively increased in every quarter of the year, viz: Quarter 1, US$92 M; Quarter 2, US$96 M; Quarter 3, US$110 M; Quarter 4, US$115 M. The data are a clearer indicator of consumer confidence, rather than Mr Maxwell’s “consumer spending heading in the wrong direction.”
Editor, in future, it would be helpful if you sought clarification, or a simultaneous response, from the Bureau in situations like this, where a clear misunderstanding of the fundamentals of the economy led to faulty analysis and confusion, instead of the education of your readers.
Yours faithfully,
Lennox Benjamin
Chief Statistician
