7 reasons why the Philippine economic growth is not a bubble in disguise

By Randell Tiongson on November 26th, 2013

A Forbes columnist recently wrote an article that stirred  up a hornets’ nest. The post called out the Philippine economic miracle as a bubble in disguise. While the author has some valid points we should not ignore, many of us do not agree. The Philippine economy is the fastest growing economy in Southeast Asia and one of the fastest in the world!

So, is the Philippine economic growth really a bubble in disguise? Our answer is a flat no!

I recently had a conversation with my colleague, economist Dr. Alvin P. Ang who is also the President of the Philippine Economic Society. We both felt that the analysis is rather thin and is not very accurate. Truth to be told, his analysis seems to be delinked from our reality.

Here are 7 good reasons why the Philippine economic growth is not a bubble in disguise:


1. The Philippines has enough guarantees (learning even prior to 1998 Asian Crisis) on RE (real estate) bubbles.  Banks are not allowed to lend beyond 25% of their portfolios to real estate.  The RE market is clearly differentiated into segments and the large bulk affordable to people is not necessarily facing a bubble.

2. Debt to GDP ratio is now low.  Majority of the current debts are long term in nature.

3. Stock market already corrected more or less mirroring GDP growth valuation.

4. Our consumer spending has been growing for years – this is financed largely by OFW remittances.

5. OFW remittances are not coming mostly from the US. Our workers are spread all over the world – this is the reason why the 2009 crisis barely affected remittance growth.  Besides, BPOs also has a significant contributing factor and also spreading beyond call centers to higher value added outsourced work.  The current account position or the short-term foreign exchange payables are in surplus – a far cry from our situation in the 80s and 90s.  Are reserves are now in record high!

6. Car sales are increasing not only due to low interest rates, but also because car prices have become lower relative to total income.

7. We are not having a credit bubble when loans to GDP is only 51% one of the lowest in Asia.  Non-Performing Loans (NPL) as % of total loans is at all time low of only 2.7% – suggesting the better quality of loans.


Nonetheless, sustaining the current growth path and avoiding any bubble requires that the country take advantage of the low interest rate regime by shifting to productive activities.  The concern is the required structural adjustment to match the need for employment growth.

Furthermore, the rebuilding requirements of the devastated areas will push public spending higher cushioning any potential RE bubbles.  There is nothing wrong with government spending for infrastructure, as this is what is needed to sustain the growth.  With the rebuilding process, government will not be affected by external interest rate fluctuations as multilaterals like Asian Development Bank and World Bank will lend at concessional rates.  This will most likely be followed by ‘bilaterals’.

Finally, it is time for local investors and entrepreneurs to believe in this country and not be swayed by external opinions.  After all, we live here.  It is only us who can disprove opinions made from outside without coming here and studying the country in detail.

The Department of Finance issued a statement in reaction to the “bubble” article featured in Forbes:


25 November 2013

The Philippine economy is not experiencing a bubble, contrary to a Forbes article on 21 November 2013.

First, the current account in the BOP is in surplus, by 4.2% of GDP in the first half of the year. This implies that the economy has more savings than 600px-Seal_of_the_Department_of_Finance_of_the_Philippinesinvestment and is even a net lender to the rest of the world. Compared with the 1997-98 Asian crisis, all ASEAN countries except Singapore then had current account deficits. (Hong Kong and China were also in surplus.)

As a result of the robust current account, the country’s international reserves are piling up — rising from US$81.7 billion last year to US$83.4 billion in October 2013, equivalent to a year of imports of goods and services, one of Asia’s highest. Compared with 1997-98, ASEAN reserves were equivalent to 1-2 months of imports and were declining at a fast pace until the IMF stepped in to assist these economies.

Second, the inflation rate is manageable at 2.9% in October 2013 — still within the 3-5% Bangko Sentral target. In 1997, ASEAN economies had an average inflation rate of 6.1% and this rose to 15.1% the next year.

Third, the exchange rate continues to be stable, moving just slightly outside the P41-43/US$ range. The 4.2% peso YOY depreciation in October 2013 is far from the 13.1% and 53.8% ASEAN depreciation in 1997-98.

Fourth, the budget deficit is estimated at 1.2% of GDP as of September 2013 — lower than the targeted 2% of GDP. The 35.8% infrastructure spending in the first half of 2013 is due more to realignment of spending priorities than excessive spending.

The strong BOP and fiscal accounts and low inflation do not indicate that a bubble exists.

Colombo mentions some indicators showing a bubble, as follows:

1.   Soaring capital inflows –  The capital inflows he is referring to are OFW remittances and BPO revenues which have proven to rise even under the worst economic conditions in the West. Personal remittances of OFWs rose 9.7% last year and 6.6% as of September this year even if Europe was in crisis  and US was not growing.

2.   External debt spike –  External debt of the Philippines has been declining from US$60.4 billion in 2011 to US$60.3 billion in 2012 and US$58.1 billion as of June 2013.   As % of GDP, this are equivalent to 27.0%, 24.1% and 21.6%, respectively.

3.   FDI has boomed during the last 10 years – We would be happy if this were true. FDI has averaged less than 0.9% of GDP during the past 5 years.

4.   PSE has tripled since 2009 – The sharp PSE rise (32% average during the last 5 years) just mirrored the sharp rise in corporations’ net income (28.4% rise).

5.   Inflating property bubble – The rise in prices and rentals of residential properties in Manila CBD are not a sign of a bubble but are in fact due to rising demand and low supply. Eventually, prices and rentals will go down as new supply comes onstream. As of 2013 Q2, vacancy rate is 9.8% and 4.3% for residential and office space, respectively. When vacancy rates drop below 10%, prices and rentals rise. It is necessary to keep on building to reduce impact on prices.

We must continue to pray with and for our nation: “Blessed is the nation whose God is the LORD, the people he chose for his inheritance.” – Psalm 33:12, NIV



18 thoughts on “7 reasons why the Philippine economic growth is not a bubble in disguise”

  • If we have to believe all those presented, who benefits everything?….It’s suppose to be the masa but the masa can’t feel that progress, no improvement at all. where is progress?…..in short if it’s not only the rich whose economy is in abundance & continue to grow, we’ll come to believe many of these are in the pockets again of the greedy servants of themselves only….. so sad, so very very sad….anyway, the great God of the filipinos will surely revenge for the least of His people & that’s for sure, if not in this temporary life, it will be in the permanent life next to this borrowed life….IIwan din ng mga greedy rich yang progress na yan once their temporary life is taken away by the owner…God bless the Philippines!

  • LOL, this one made me laugh, anybody that denies that the crazy consumer spending of Filipinos is not based on pure credit, while poverty and inequality is rampant, it is either completely ignorant of the Philippines, or a paid financial hack, or both.

  • Thanks randell for including in your article the ” reaction oro meant” of the department of finance to the Forbes article. Everyone must have a positive thought on the daily activities.es of the government and every Filipino. Every masa has difficulty feeling the economic progress of the country if thoughts are negative or we are not contributing to the progress of the country. ACT NOT JUST FEEL.

  • @sir Tristan,
    Ideally when we are in a bubble, the stocks must go up. It will only slide down when the bubble burst.

  • Nice read. I believe instead of getting swayed and looking forward to a “bubble”, we must believe in the Philippines and take the bargain stock prices as an opportunity to build wealth for ourselves and the nation.

  • Economists will always preach about rising GDP and rising stock market. Useless indicators to the common folk. See past those… the important ones are price of goods relative to income tracked through time. Those determine if a country’s people are getting prosperous or not. In case no one noticed, prices of everything are outrunning your wages. Remember P24 per liter a decade ago to P50 today? P80 2pc chickenjoy to today’s P125? P700k civic to today’s 900k? 8% increase in tuition annually? How about real estate? Starting salary in the IT industry a decade ago was P18k… today it’s neary still the same! (check PinoyExchange forum, people share data there, as well as SalaryExplorer and GlassDoor). For those working in corporate.. do you honestly think your annual raise is keeping up with the increase of prices?

    A rising stock market does not help the common Filipino. Delve deeper, a higher stock price of Globe, PLDT, Meralco, etc. means they are consistently turning profit. Now look at the value these companies have been providing for the past decade… NO IMPROVEMENT at all. Their prices do not get cheaper, their service does not improve, even their websites are stagnant. They just find ways to make more money off of apathetic Filipinos, that’s what it means when the stock market rises. Financial analysts will always preach hope because they have a vested interest in the common sheeple buying into the stock market: to keep the boil up keep the prices rising so they can sell their stakes at a profit. No sane analyst brings the market down with realistic news because no one wins. And then when they have sold off, all the sheeple are left with devalued shares at a ‘recession’. And watch them blame external factors for the dip. Couple of years later.. repeat the process.

  • The Forbes article also made a mistake in saying that 90% of OFW remittances come from the US. Really I find it preposterous that somebody will claim that 90% of all OFW remittances come from just 1 country when we are all over the world. It may be true that 90% of the money are remitted from US banks, but it is not true that all those moneys are from OFWs who are working in the US. The companies that the OFWs work for just find it convenient to use US banks in paying or coursing the remittances of their employees.

    A prime example are filipino onshore or offshore oil drilling and production workers. They may be working in the Middle East, South and SouthEast Asia, Africa, Mediterranean Sea, the North Sea, Central and South America or the Caspians but almost all of them get paid from banks in New York (with the exception of those working for Norwegian and British companies). Add the fact that the salaries of these workers are way above the average OFW salaries (think 7 digits/month USD) and it really adds up.

    The other group of OFWs are the shipping industry workers, both in cargo, tankers, bulk and cruise ships. They may be on a ship sailing all over the globe but their salaries almost all get coursed through New York.

  • I`m living in Germany. I think, the progress that occuring now to the Phils. has nothing to do with poor Filipinos. It`s only for the RICH people.

  • Hi Randell, How many times has the BSP reduced interest rates in the last 24 months? Recent statements by the BSP indicate that they do not wish to cut base rates even more but they certainly have left the door open.
    Recent strolls through the malls and the towns show a rather tepid retail climate while at the same time SM and Robinsons continue with new projects, leading one to wonder how any of these shops excluding the food vendors manages to make a profit.
    I continually wonder how confidence is maintained on increased remittances when it is clear that Saudi Arabia and Kuwait are currently intent on heavily reducing foreign labor along with expectations that the rest of the M.E. will follow their example. Not to mention how higher unemployment and decreasing wages in western nations will effect remittances.
    In the property sector I actually inquired into a Robinson’s project in Manila that had already been completed. I was informed that the project was sold out. I asked the rep how that is possible as when I look at the building during the night there are very few lights on. He explained that the condos had been purchased by investors. Isn’t this reminiscent of the growing Chinese property bubble that the world is watching? Mr Colombo has clearly pointed out the dependence on Philippine economic growth to the construction sector just as in China when the investors stop buying the construction will stop.
    At some point, some one in the crowd will point out the Emperor has no clothes. Mr Colombo is correct that the next Asian Crises will be led by China. While it is admirable that you advocate faith in the Filipino and Philippine society, it strikes me that you are replacing faith and a sense of national pride with economic basics that can be understood by any student of Adam Smith.

  • We all know, or should I say, we should all know that all stock markets are nothing but just a big, or the mother of all fonzi schemes. Those P/E ratios were doctored to lure innocent investors. When the market goes down, they call it corrections, but when it bursts, they call it a meltdown, and the only good thing that comes out of it is, no one goes to jail. What is the difference between Bernie Madoff and the rest of the stock markets? Berns went to jail for the rest of his life while the markets continued to fool the fools.

  • bubble or not, i expect different ideas on this topics… privately i’m interested in ph stocks. i have read the other article with the graphs and tables included. this may or may not affect my stock positions… but still thanks sir Randell Tiongson on your seven points…

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7 reasons why the Philippine economic growth is not a bubble in disguise