EconomyEditor's PickPHL household spending growth seen slowing to 5.1% starting 2023

November 9, 2022
PHILIPPINE STAR/ MICHAEL VARCAS

HOUSEHOLD spending growth in the Philippines is likely to settle into a 5.1% average in the 2023-2026 period, slowing from the estimated 7.6% this year, Fitch Solutions Country Risk and Industry Research said.

In a Nov. 8 report, Fitch Solutions said household spending could grow 5.5% in 2023.

“We expect household spending to outpace consumer price inflation in 2023. This will ensure real income growth and greater potential for consumer spending,” Fitch Solutions said.

According to Fitch Solutions, consumer confidence and retail sales have been slowly recovering.

“Consumer confidence in the Philippines remains low, but an examination of the previous two years shows signs of improvement,” it said.

The Bangko Sentral ng Pilipinas (BSP) reported that the third quarter consumer confidence index dropped to -12.9% from -5.2% in the preceding three months.

Fitch Solutions said this is still a significant improvement from -54.5% recorded in the third quarter of 2020, with consumer confidence improving hand-in-hand with the reopening of the economy.

“Retail sales have continued to increase from Q1 2021 onwards, albeit at a relatively slow pace. We will continue to watch both indicators and amend our forecasts when deemed necessary,” it said.

The Philippine Statistics Authority reported that household spending grew 8.6% in the second quarter, accelerating from 7.3% a year earlier.

Household consumption, which typically accounts for 70% of the economy, declined by 9.6% in 2020.

“The pandemic was responsible for a change in consumption by Filipino households from 2020 to early 2022. Due to mass unemployment, especially in the services sector, the country entered an economic recession,” Fitch Solutions said.

“Many households were forced to apply for credit and government aid in order to pay for essential items. Following the relaxation of restrictions, consumer lending has started to decline, especially with respect to salary-based loans and unsecured debt.”

According to Fitch Solutions, money sent home by overseas Filipino workers (OFWs) is an important source of income for households. Demand for OFWs will also continue to rise globally.

“In particular, there is a demand for Filipino workers skilled in jobs related to medical and health services, construction, and housekeeping,” Fitch Solutions said.

“However, we do highlight several risks to this income over the year, mostly related to the negative impact from the Ukraine-Russia conflict,” it added.

The BSP estimates that cash remittances sent through banks totaled $2.72 billion in August, against $2.60 billion a year earlier.

In the first eight months, cash remittances rose 3% year on year.

“Elevated inflation will be a risk to the forecast with respect to consumer spending in the Philippines. However, the Country Risk team expects consumer price inflation to fall from 6.8% in 2022 to 3.7% in 2023,” Fitch Solutions said.

Headline inflation surged to 7.7% in October, the highest in nearly 14 years, after coming in at 6.9% in September and 4% in October 2021. The BSP’s 2-4% target range for inflation was breached for a seventh consecutive month.

In the first 10 months, inflation averaged 5.4%, which is lower than the BSP’s 5.6% full-year forecast.

“Elevated energy prices and tightening monetary policy will result in further deceleration during the forecast period. Inflation is likely to remain elevated relative to the BSP’s target range of 2-4% and we expect the central bank to tighten monetary policy further to anchor inflation expectations,” Fitch Solutions said.

Since May, the BSP has raised rates by 225 basis points (bps), bringing the overnight reverse repurchase facility rate to 4.25%. The Monetary Board is widely expected to hike its policy rate by 75 bps at its Nov. 17 meeting.

Fitch Solutions expects the Philippines to report gross domestic product growth of 6.6% this year and 6.2% next year. — Keisha B. Ta-asan

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