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Tuesday, December 19, 2017

Recovery in the Great Recession Has Been Amost Imperceptible - Let Me Tell You Why!

The economic recovery of the Great Recession has been almost imperceptible to most Americans. On a per capita bais, real GDP per Capita grew by 6.71% in the past ten years - or roughly a compounded annual average growth rate of only 0.72% per annum. This is far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum.  This growth rate is so slow that it is almost imperceptible.

Sometime in 2018, if growth rates continue their current trend, something extraordinary will happen. Those who survived the Great Depression in 1940 (eleven years after the onset of the Great Depression) will be substantially better of than the survivors of the Great Recession in 2018. Real GDP Per Capita for Great Recession survivors would have grown by another anemic 0.72% per annum in 2018. But for survivors of the Great Depression era, their incomes per capita would have grown by an astounding 7.75% in just one year. Moreover, that trend will only accelerate in the next three years. By 1943, Great Depression survivors will be almost 56%  richer than they were in 1940. 

Can we expect the same for survivors of the Great Recession in the next three years? It's possible but not probable.

Thursday, December 14, 2017

Have Philippine Real Estate and Construction Loans Reached a Permanently High Plateau? - As of September 2017

Have Philippine Real Estate and Construction Loans reached a permanently high plateau? Real Estate and Construction Loans as a percentage of Total Loan Portfolio (TLP) rocketed past its historical range of 12.6% to 16.6% of TLP sometime in 2011.  That ratio peaked at 20.55% as of September 2013 but has bottomed out at 18.61% of TLP as of December 2014. This ratio has climbed back up to 19.40% as of September 2017.

Now, are we up to the levels of the previous real estate boom? (as in mid 1990s to 1997?) Honestly, we don't know.  BSP data only goes as far back as 1999 when the previous real estate bubble had already burst and the financial system was most likely deleveraging. However, we do know that investment in construction as percentage of GDP is at an all time high of 13.01% as of September 2017, surpassing the previous all time high of 12.10% of GDP in 1990.

This has led to a substantial cumulative overhang in the construction sector. Investment in the construction sector has been way higher than normal, leading to a possible investment hangover sometime down the road.

Has the Philippine Real Estate Bubble Already Burst?

Is there a Real Estate Bubble in the Philippines?

Are Philippine Real Estate Loans Out of Whack?