I recently pointed out of the important distinction between theory and statistics
while statistics may assist in providing empirical evidence, they must be used with caution. Statistics should not be used to derive for causation and theory, instead economics which is an a priori science, should serve as groundwork for sound analysis.
Thus, in arguing the case of the risks of a Philippine bubble in shopping malls, which I have premised from basic economic theory, specifically the “if then” proposition about the risks of supply surpassing demand (which may lead to an oversupply), my use of statistics functioned either to validate or falsify the premises.
In short, I did not rely on statistics to make my case.
Of course, I further proposed that the artificially low interest may have aggravated on such imbalances. With the possibility that the supply side may be overestimating demand or falling into economic miscalculation, credit may be further used to aggravate such imbalances. If so, then this would highlight the business (bubble) cycle in motion which means systemic risk could be building. I am talking here about systemic credit and not company specific debt. I previously raised BSP’s account of over 20% credit growth in November for both retail and the property sector.
My explanation revolved around examining the 3 ways people to consume; productivity growth (which is the sound or sustainable way) and or by the running down of savings stock and or through acquiring debt (the latter two are unsustainable).
While I mentioned the relative conditions of shopping mall around the world, notice that I didn’t focus on them. That’s because like individuals, I understand that every economy is distinct or has unique traits. For instance, the richest countries or the biggest recipients of remittances, either in nominal or as share of the economy, does not share the same character of the Filipino shoppers.
So I focused on the potential sources of growth: productivity growth (which is the sound or sustainable way), the running down of stock of savings and or through debt (the latter two are unsustainable).
Thus my methodology came about examining potential productivity through the formal economy, remittances and the informal economy and comparing them with the consumption benchmark provided by the NSCB.
But make no mistake, I don’t see NSCB’s data as sacrosanct. As I have pointed out, I believe that informal economy has been meaningfully understated, yet despite their strength they seem hardly convincing to fill in the void from demand and supply of shopping malls.
And I would point out that the reason mall developers have what I call as 10% baseline (at least) is because of the current strong performances.
But the problem is NOT today, rather the problem is the sustainability of today’s action, remember “if then” proposition, which could be manifested in the future via a debt crisis through the shopping mall-property bubble.
Shouting out statistics of mall revenues of the recent past does diminish the fundamental premise. As the Wall Street axiom goes, past performance does not guarantee future results.
Nevertheless here are some charts from NSCB (thanks to a blog commenter)
GROSS NATIONAL INCOME AND GROSS DOMESTIC PRODUCT BY EXPENDITURE SHARES (at constant 1ST QUARTER 1998 TO 4TH QUARTER 2010, AT CONSTANT PRICES
Link to download spreadsheet here
It turns out that CAGR from 1981 until 2011 was at 3.56%
On the spreadsheet, the NSCB has a growth rate table (annualized but per quarter) based on the above data
From the Scattergraph, it would appear that the normal distribution for Household Final Consumption Expenditure (HFCE) is at the range of 2-6% with all (above or below) others signifying fat tails.
Going through another NSCB link (again provided by the same commentator) which shows the NSCB’s Gross National Income and Gross Domestic Product by Expenditure Shares--1st Qtr 2008 - 3rd Qtr 2012 (in million PhP) from 2008-2011, we find that the CAGR for Household Final Consumption Expenditure (HFCE) for a four-year (2008-2011) compounding period was at 5.75% (current) and 2.97% (constant)
The above chimes along with the World Bank’s Household final consumption expenditure per capita growth (annual %)
We don’t really have to rely on NSCB data to measure consumption.
Theory says we just need to just look at statistical economic growth. The underlying reasoning is that the rate of economic growth should more or less reflect on consumption levels.
Yet if consumption grows beyond economic growth then it is likely that such growth would be unsustainable, as mentioned above, as demand may be funded by a drawdown in savings or through debt.
(chart from tradingeconomics.com)
No matter one's bias, Philippine economic growth has hardly grown above 10%
From the GDP per capita perspective
From tradingeconomics
The Gross Domestic Product per capita in Philippines was last recorded at 1410.78 US dollars in 2011. The GDP per Capita in Philippines is equivalent to 11 percent of the world's average. GDP per capita in Philippines is reported by the World Bank. Historically, from 1960 until 2011, Philippines GDP per capita averaged 919.2 USD reaching an all time high of 1410.8 USD in December of 2011 and a record low of 611.9 USD in December of 1960. The GDP per capita is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the total population. This page includes a chart with historical data for Philippines GDP per capita.
For a compounding period of 51 years from December 1960 to December 2011 CAGR has been at 1.645%
GDP per capita PPP
From Tradingeconomics:
The Gross Domestic Product per capita in Philippines was last recorded at 4139.92 US dollars in 2011, when adjusted by purchasing power parity (PPP). The GDP per Capita, in Philippines, when adjusted by Purchasing Power Parity is equivalent to 19 percent of the world's average. GDP per capita PPP in Philippines is reported by the World Bank. Historically, from 1980 until 2011, Philippines GDP per capita PPP averaged 2313.8 USD reaching an all time high of 4139.9 USD in December of 2011 and a record low of 1349.7 USD in December of 1980. The GDP per capita PPP is obtained by dividing the country’s gross domestic product, adjusted by purchasing power parity, by the total population. This page includes a chart with historical data for Philippines GDP per capita PPP.
For a compounding period of 30 years, from December 1980 to December 2011 CAGR has been at 3.8066%
I am not here to convince anyone, rather I am expressing my opinion about the risks to the economy and to my investments from current developments.
Yet cherry picking statistical data, proof of assertions or declaration of faith will hardly wish away economic laws.
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