Be careful of taking too much credit

There are many elements that are part of a nation’s economy and many ways to measure them. None of them exist independently, nor individually create an accurate picture of the health, resilience in periods of domestic and external stresses, and benefits to citizens and participants.

It is simple to speak of economic growth as measured by the gross domestic product. However, there are several ways to measure both the size and the growth of the GDP. Individual worker productivity matters, as does the amount of population.

Singapore has the 37th largest economy but is number 6 in per capita GDP due to its 5.4 million population. The Philippines ranks at 38 and 126, respectively. But measure the GDP size based on Per Capita Purchasing Power Parity (measuring the absolute purchasing power of the countries’ currencies) and Singapore is number 2.

Price inflation seems simple enough to measure and that is important to every consumer. But the composition and quality of even products that should be the same as food or clothing vary widely. Even the “Big Mac,” “KFC” or “ipad” (or an item that formally all came out of the same factory) index can only show differences in different currencies’ domestic purchasing power and say little about an economy.

Detractors tell us that the one problem with the Philippine economy is that it depends too much on consumer spending. The reality is that the whole world is a “consumer economy,” except of course for the countless millions of fishers and farmers who harvest just enough food to eat in their “subsistence economy.”

China’s economy depends on consumer spending not just from the Chinese. They depend on the consumers in the US and Europe. Certainly, it is advantageous to be self-sufficient for your manufactured goods. Japan built its miracle economy selling stuff to the rest of the world. That is until about 2012 when it started importing more than it exported and that continued until today, except for a brief period from 2016 to 2018 and during Covid. Plus Japan imports 60 percent of the food it eats.

The South Korean export miracle has also turned negative as the economic slowdown of its trading buyers made its trade balance negative in 2022.

Therefore, one way to look at an individual economy—and by extension the global situation—is to look at its consumers.

The supposed “economic engine of the world,” the US, has major consumer problems. The US savings rate has moved from a high of 30 percent during Covid—with a historical average of about 8 percent—to the current 2.4 percent, half of what it was 112 months ago.

A credit card is the fastest way for consumers to spend money they do not have. In Canada, 82 percent have a credit card, against 67 percent in the US. Less than 10 percent of Filipinos have a credit card.

Individual credit card debt in the US is at a historic high as is the credit card interest rate. Yet the amount of US credit card debt is at a historic high. Further, US credit card companies are looking at historically high “net charge-offs”—provision for writing off debt they figure will never be paid. Subprime delinquent automobile loans are at the highest rate since 2006.

An economy can be in trouble when the government has too much debt service that drains revenues. But far worse is when the economy has too much unpayable consumer credit. The Philippines, despite Covid, is still maintaining the same consumer and business credit growth as it has for 25 years and that is a strong economic positive for the future.