Money Matters

7 reasons why PH economic growth is not a bubble in disguise


A Forbes columnist recently wrote an article that stirred 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 was rather thin, not very accurate. Truth to be told, his analysis seems delinked from our reality.

Here are seven 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 percent 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.  The majority of the current debts are long term in nature.

3. Stock market has 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 United States. Our workers are spread all over the world—this is the reason why the 2009 crisis barely affected remittance growth.  Besides, the BPO sector has become a significant contributing factor and is 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 percent, one of the lowest in Asia.  Non-Performing Loans (NPL) as a percentage of total loans is at all time low of only 2.7 percent, suggesting the better quality of loans.

Nonetheless, sustaining the current growth path and avoiding any bubble require 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.  Only we can disprove opinions expressed by those abroad who do not even come here to study the country in detail.

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

(Randell Tiongson is a director of the Registered Financial Planner Institute Philippines and a leading personal finance advocate. To read his personal finance posts, visit to learn more about financial planning and how to become RFP, attend our FREE personal finance talk on Dec. 5, 7 p.m. at PSE Ortigas. To reserve, email or text <name><email><RFPinfo> at 0917-3464126)

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  • kapitanvic1

    The changes we are seeing in the Arctic are unprecedented in thousands of years, and they are already having a catastrophic impact on human civilizations, animals, and ecosystems there.”
    The extinction of some other living species have begun, soon it could be our own. What if we find out in the end that we could have averted it if only the world as a whole could have change it’s attitude towards materialism.

  • OFW_Investor

    Banks here in the Phils do their own due diligince. Thats why NPL are at an all time low and still decreasing.A Borrower here cant get too much leverage as he has to pay at least 20% DP to get a loan. and the dampener is ,its not too easy to flip properties, as the seller will be facing a 6% capital gains tax and the buyer about 3% transaction costs. It appears the article has not carried out its own due diligince and instead relied on some misleading info here and there. Try to live here in Manila and you’ll know end user demand is real. I have leased my property uninterrupted for 5 years now.

  • eight_log

    The fundamentals that are propping up the Philippine economy are the OFW Remittance. Another is the drive to curb corruption and add to that the CB not doing much … lol … we are on solid ground!!!

  • carlcid

    The fact that so many people are up in arms and responding to that Forbes article indicates that there may be some truth to it, because it has hit a huge nerve.

    • asian101

      Responses like these are so common in life but no basis whatsoever. “The gentleman on trial was so fidgety he surely looks guilty “.

      • carlcid

        Your response is askew. The fact that so many responses were elicited by that article is proof that there was, indeed, some basis for what the author said. Otherwise, it would simply have been ignored.

        The inevitability of interest rates rising at some time in the future cannot be denied. What follows after interest rates rise is also rather predictable. When cost of money goes up, money flees to fixed income and exits riskier investments, such as stocks and property. What are difficult to determine are the timing of those interest rate increases and the intensity or degree of damage it inflicts on financial markets. What goes down will eventually go up. That is a given. It isn’t difficult to figure what will happen in the long run. But the real talent is to figure out when exactly interest rates will go up. And exactly how it will affect the markets. And, as John Maynard Keynes once said, “in the long run, we will all be dead”.

      • Batala

        If that is the case then the perfect example is China with her artificial and strong-arm control of her currency.

        Yes there is the inevitable but of course the big difference is in policy formulation and enactment wherein surprisingly the economic policies preventing the growth of the Philippines are the very same thing that protects her.

        What goes down can actually be managed via a conservative outlook in for example in the real estate industry. Yes it will go down and even get to zero but the policies in place (and the implementation) will be sure that it does not affect the overall economy.

    • Batala

      There is definitely a grain of truth in the Forbes bubble but all are “theories” as with ANY economic projection there will be positive and negative and A GREAT DEGREE OF MARGIN OF ERROR.

      There are 2 significant markets that survived multiple financial crisis in magnificent ways:
      1. China
      2. Philippines

      1. For the Philippines it is simply economic fundamentals. The Philippines simply doesn’t have the power to “fake it” as the analysis after the fact are all FOREIGN in nature. The very conservative policies and EVEN MORE CONSERVATIVE IMPLEMENTATION. Good will of our people to our friends and allies.
      2. China IT IS THE ARTIFICIAL CONTROL OF CURRENCY AND MASSIVE ABUSE OF HER CITIZENRY. And in recent years illegal economic sanctions levied against countries of the free world.

  • Bayang_magiliw

    BAD NEWS for CCCC (CBCP, Corrupt and Communist Coalition)!!! Prof Leonor “loser” Briones THE QUEEN of CRABS, what can you say now?????

  • Batala

    Our fundamentals are very strong. And in the issue about “real estate bubble threat” this is the simple explanation – our country is so conservative in this area that even failure in real estate will not be enough to bring the economy down.

    The only real threats to us now is 1) massive corruption in government and 2) Aggressive and rouge acts of China against the Philippines.

    • Batala

      This is a reply to forum member
      …nmapster… (also to carlcid)
      whose comments are in “preventive moderation.”

      If you look even from where I began I didn’t say that Jesse was wrong to do it, neither did I say that the newspiece is wholly correct.

      Points we could definitely agree with:
      1. Jesse has good points that we should never take for granted.
      2. Alvin who was interviewed by the reporter also has good points that should be equally acknowledged.
      3. It is not like we should take sides as we should get all the advice we can get.

      Yes as I’ve also replied to carlcid above there is definitely a grain of truth and we must be wise to listen to the prophets (of doom) who knows their business. In that regard then what must be done is put cap (not stopping but great caution) on the real estate industry if in order to have a prudent posture in preventing a collapse in that area alone.

      Important Question!
      Can you say that if a problem in the real estate industry can have an overall encompassing effect on the economy of the Philippines? How much is now in the stock market that is directly affected by real estate? How much in the banks are directly affected by real estate?

      The overall economy is my point here even a problem in the real estate is almost guaranteed not be all-encompassing. I am also personally against giving out loans to borrowers that does not have what it takes to pay them.

      I am in agreement that we must accept Jesse’s warning and BE EVEN MORE DILIGENT as we don’t want companies to fail and we don’t want people to lose their jobs.

      • AER84

        Batala – I like your replies. And while this isn’t a rebuttal at all of the Forbes article I’d like to mention two things.

        In 2009 the IMF, World Bank and other international economic institutions kept forecasting that Philippine remittances from OFW’s would drop like a rock basically. I can’t recall the number exactly but the statements were something like this – due to the global recession in most developed (US, Japan and Europe) and advanced developing (ME, Singapore, HK) from the 2008 economic fallout – the Philippines would suffer a huge drop in remittances from its OFW’s based in those countries. They continued that the Philippine economy will be particularly affected as a result of the drop in remittances. I imagine that this Colombo fellow if he hadn’t been patting himself so much on the back because of his lucky prediction of the US Real Estate bubble – would have joined the WB and IMF bandwagon. Well the WB and IMF got a black eye on the OFW remittance projection, which has continued to grow non-stop.

        The second thing I want to mention is the Real Estate situation in 1997 versus 2009. I remember things very well because I built a house back in 1996 and bought a condo in 2008. In both situations I bought/developed real estate just prior to a major global economic collapse. In 1997 interest rates spiraled and the real estate market basically collapsed. Many companies which existed then and had branched off to real estate because of the boom went bankrupt. Ever Gotesco and Nikon (small appliance manufacturers) are just two examples of bankrupt companies which people no longer remember as they’ve disappeared from the economic horizon completely. I had a loan back then for building my house and man did I suffer – the bank basically doubled my interest rate – I sold stocks and dollars to pay off my mortgage (in hind sight at a considerable loss – dollar then went from P24 to P41 – and I sold at P25). I also went into short term debt to some relatives which I paid off quickly. I felt the suffering and felt others pain back then. The banks tightened credit and increased reserves to offset losses in real estate. The Philippine FE reserves fell to an all time low. What a difference with the 2009 situation. I had bought my condo with cash – so had no debt. In any case, I needn’t have worried, interest rates in the bank did not rise. Some banks did raise lending rates shortly after 2008 economic fall out but since then lending rates have continued to fall. The effects of US QE did not really come into play for the Philippines till the late 2010 period. Also, there was no rash of bankruptcies of any Philippine corporations. In fact the current crop of RE developers are the survivors of the 1997 crisis like Megaworld, SM and Ayala – who because they were prudent investors in that period managed to thrive much more than survive until today. I don’t believe that these RE giants are anything like the rash RE boom setters of 1997. The lessons of that period were learned well – and burned into the minds of their leaders (who were already in the company back then). Further, the Philippine economy in 2009 in contrast to 1997 has continued to grow. Not just because of the cited (in the Forbes article) BPO and OFW remittance booms but also because there is confidence by consumers and investors, a confidence which was completely absent in 1997. The banks are also very strong today, in contrast to that period, achieving higher than Basel 3 standards. I don’t even know what standards Philippine banks achieved in 1997 but if it existed then they probably wouldn’t even have hit Basel 1 (haha). The article stated BPO contributes something like 4% of GDP growth but it doesn’t mention that BPO contribution to the economy will probably double within 3 years. No studies have been made yet – but productive channeling of OFW remittances to investment rather than outright consumption has been encouraged by all institutions – not just banks. I think returning OFW’s are heeding the call. I have seen in the provinces more franchises taken up – service stations, bakeshops, etc. by returned OFW’s. If we could get real statistics – this would counter the drop in savings argument of Colombo.

        So should we listen to this Colombo fellow? I say sure let’s study the statistics in the article and make sure that we improve on them. Should we listen to his analysis – fughet it. Here in the Philippines on the ground – I know and feel how wrong he is, having lived through 2 economic crises 1997 and 2009 (or late 2008 if you wish).

      • Batala

        You ought to read the new article of Jesse. :)
        He has softened his original stand. And now he even admits the Philippines is a better situation than other country BUT HE HAS A POINT THAT WE MUST BE PROACTIVE IN PROTECTING OUR CURRENT GAINS. I might add we will experience slowdown because of Yolanda.

        The problem with these analysts is that they are macro economic forecasters, who more often than not miss the important details.

        Some interesting things ought to be included (including points from foreign observers apart from the author)
        0. MYTH: Lending without proof of ability to pay or without credit card (for example supermarket and department store purchases). Except for illegal lending.
        1. The percentage of OFW in areas of meltdown (banking, real estate, and equity market players). In all of these industries Filipino OFW population IS NEGLIBLE.
        2. Percentage of real estate in the Philippine market, which is not big.
        3. Banking rules in the Philippines that protect them from excessive lending.
        4. Abuse of the word BUBBLE.

    • leomar101

      Thanks to the economic fundamentals in place during the past administration. Give credit to whom it is due. The mongol government were only harvesting the labor of Arroyos economic fundamentals she push through during her time. This is credit grabbing again if the boang president will claim it as his achievement. hehehe. What are his economic

      initiatives and economic fundementals he put in place ? NONE.

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