In fact, the Philippines’ bottom-line Gross Domestic Product (GDP) performance on a Purchasing Power Parity (PPP) basis improved by 7.6% at October 2019 compared to one year earlier.
Economic downturns historically happen within roughly 8 to 16 months from a peak in a country’s Gross Domestic Product (GDP) performance on a Purchasing Power Parity (PPP) basis.
GDP tracks a long-term growth trend via business cycles of growth or recession that repeat approximately every 5 years or so, albeit that no two business cycles mirror the same duration or size. The United States of America’s National Bureau of Economic Research found that there were 33 business cycles from 1854 to 2009.
The average length of an expansion is 38.7 months compared to 17.5 months during a recession. Historically, the world’s longest economic contraction was the 1929 Great Depression that lasted 43 months. That’s more than double the 18-month duration for the Great Recession which began in 2007 and was caused by the real estate bubble created during the 1991 to 2001 boom states Cameron King in his analysis for Forbes.
Cyclical indicators are erratic with multiple major influences. Worse, there is no consensus for which indicators universally signal business cycles in all cases.
Nevertheless, The Economist organizes its benchmarks into 3 critical categories: leading indicators that turn in advance of a cycle change; coincident indicators that define when the overall business cycle turns; and lagging indicators that top out following a business cycle.
Philippines’ Leading Business Cycle Indicators
For the Philippines, all 6 of the selected leading indicators below were better than comparable scores 12 months preceding the latest reporting period. Improvements include the critical psychological benchmarks that drive an economy forward, namely business confidence and consumer confidence.
The latest retail numbers bode well for the health of the Filipino consumer in that they help allay fears about the extent to which debt levels and economic uncertainty are weighing on consumption. However, please note that as of publication date 2018 was the freshest official statistics available.
Turning to prime borrowing costs, The Economist estimates that an economy hits its highest level about 18 months after interest rates begin to rise compared to 8 to 16 months for waning business and consumer confidence. There are shorter timeframes in advance of an economy’s GDP peak for slowdowns in car sales (6 months), retail sales and building permits (2 to 3 months).
- Interest rates: 4% at Nov. 2019 (down -0.5% from 4.5% one year earlier)
- Business confidence: 40.25 points at Oct. 2019 (up 42.2 from 28.3)
- Building permits: 32,077 at Jun. 2019 (up 10.4% from 28,747)
- Consumer confidence: 14.47 at Oct. 2019 (reversing a -4.2 score)
- Retail sales: Up 5.5% at Dec. 2018 (up 0.1% from up 5.4%)
- New car sales: 9,551 vehicles at Nov. 2019 (up 3.8% from 9,188)
The central bank in the Philippines still has some wiggle room to cut its prime 4% rate to combat future deterioration in the global economy.
Business confidence is an indicator based on opinion surveys revealing how pessimistically or optimistically business managers perceive their companies’ future potential and therefore can anticipate turning points in economic activity. In contrast, consumer confidence measures public opinions on standardized questions about household finances, a country’s economy in general as well as plans for major purchases on durable products lasting over a year or buying a home or an automobile.
Building permits mean official authorizations required before new building construction can proceed. The US Conference Board has studied building permits as a leading macroeconomic indicator for country and global business cycles. Typically, construction work starts immediately after a building permit is granted.
Retail sales refers to an aggregate measure of the percentage change in the retail sales index against the same month in the prior year. It measures consumer demand for finished goods and is considered a major macroeconomic indicator of whether an economy is moving towards contraction or expansion. Retail sales focus on volume changes only and exclude price level movements.
The car sales metric specifies the number of new passenger cars sold irrespective of price.
Philippines’ Coincident Business Cycle Indicators
Percent changes in Gross Domestic Product (GDP) on a Purchasing Power Parity (PPP) basis are much-scrutinized headline numbers that define whether an economy is contracting or expanding. That’s because year-over-year GDP changes coincide with and thus signal the start of a recession or boom period.
The latest GDP on a PPP basis statistics reveal that the Philippines economy is healthy given the positive annual growth.
- GDP: US$1.026 trillion at Oct. 2019 (up 7.6% from $953.3 billion)
- GDP per capita: $9,471 at Oct. 2019 (up 5.9% from $8,943)
Please note that the Philippines’ share of the world’s overall GDP of $141.860 trillion was 0.7% at October 2019, same as one year earlier.
In addition, the GDP per capita income of $9,471 for the Philippines is just over half the global average GDP per person of $18,391 as of October 2019.
Philippines’ Lagging Business Cycle Indicators
Filipinos can gain some satisfaction from the fact that all 3 of the selected lagging indicators improved compared to the same metric in the prior year, outperforming many international rival economies.
Usually capital investment shadows GDP peaks and valleys via a 12-month delay. Both inflation and unemployment accelerate about 6 months after GDP reaches its maximum growth.
- Capital investment to GDP ratio: 27.2% in 2019 (up 0.27% from 26.94%)
- Unemployment rate: 5.175% in 2019 (down -0.15% from 5.325%)
- Inflation rate: 2.512% in 2019 (down -2.7% from 5.212%)
The ratio of capital investment to GDP is a lagging but future planning-oriented indicator that records the value that a country spends on capital development and infrastructure projects divided by its overall GDP output on a PPP basis.
Unemployment rate is a crucial percentage based on a country’s total labor force (not its full population) since it profoundly impacts how many debtors can afford to pay their mortgages and other borrowings.
Inflation rate documents the percentage change in average consumer prices in a country over a one-year period.
Research Reference Materials:
Forbes, Recession Is Overdue By 4.5 Years, Here’s How To Prepare. Accessed on December 24, 2019
International Monetary Fund, Interest Rates selected indicators, World Economic Outlook Databases (inflation, investment, unemployment). Accessed on December 24, 2019
MarkLines Automotive Industry Portal, Philippines Flash report, sales volume, 2019. Accessed on December 24, 2019
National Bureau of Economic Research, US Business Cycle Expansions and Contractions. Accessed on December 24, 2019
The Conference Board, Global Consumer Confidence Unchanged in Q3. Accessed on December 24, 2019
The Economist, Guide to Economic Indicators: Making Sense of Economics (7th Edition). Accessed on December 24, 2019
Statistica, Forecast for retail sales growth of the Philippines. Accessed on December 24, 2019
Wikipedia, Consumer confidence index. Accessed on December 24, 2019