THE 6-percent year-on-year GDP growth for the third quarter of 2015 was below expectations. It is boring to hear the government’s excuses why its spending did not reach projections. It is equally boring to hear the pundits talk about how the Philippine economy is consumer-based.
Here is “flash news” for some of the experts—all economies are consumer- based. All you need to do to verify that is to look at Japan.
The Japanese economy has been dead for at least two decades. However, for 30 years beginning in 1960, economic growth averaged 6 percent. In the 20 years from 1960 to 1980, growth averaged an astounding 14 percent each year. In the last 20 years, Japanese economic growth posted an average growth of less than 2 percent.
How could a nation with that amount of economic growth be the “basket” case of the industrialized world? Simple. From 1962 through 1997, the average Japanese household saved—not spent—no less than 15 percent of their income. Personal savings in Japan averaged 11.61 percent from 1970 until 2015, reaching an all time high of 48.30 percent in December of 1997.
Since 1980 the Japanese economy increased in size by 400 percent. The amount of Japanese consumer spending increased by only 100 percent. No matter how much “income” an economy makes through exports, remittances, outsourcing, or whatever, that income does not translate into genuine personal economic growth if the income is not spent. Thinking that government spending can be the magic bullet for an economy is false also. Japanese government spending nearly tripled even as economic growth all but stopped.
The Philippines’s economic growth in the last decade has been fueled by consumer spending, which has created long-term investment. Philippine household consumption equaled 72 percent of GDP last year and too many view this as a negative. Thailand’s household consumption was only 53 percent of GDP, not far behind Indonesia’s 57 percent and Vietnam’s 64 percent. Which of the four countries had the best economic growth? The Philippines, of course.
The Philippines has emerged as the best retail performer in Southeast Asia with industry growth of 6 percent in 2014, the highest among our regional neighbors. And the Wall Street Journal says, “The only performance based on solid growth in both volume and value terms.”
Here are more interesting numbers. From 2012 to mid-2015, the number of supermarkets grew 53 percent. The number of convenience stores rose 60 percent. The stores and malls create jobs.
Of course, the Philippines is not manufacturing supercomputers, aircraft carriers, or even all the clothes we wear. That is certainly not an ideal economic situation and we need to work diligently on increasing our manufacturing base for all goods, both consumer and industrial. But for now, we need to keep cash-based consumer spending growing until we can reach for more industrialization.
Image credits: Jimbo Albano