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A consumption-driven economy

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Consumer spending has traditionally been the driving force behind the growth of the Philippine economy in recent years, with households contributing majority of aggregate expenditures. This year, the outlook for the country’s economy remains strong, which is still expected to be led by robust consumer spending as a result of lower inflation.

While annual private consumption growth declined from 5.9% in 2017 to 5.6% in 2018, the World Bank said it is likely to rebound to 5.9% at the end of the year and to 6% in the following year due to declining inflation and the continued job generation in the economy.

The organization added that this will further fuel remittances that are expected to remain steady as new employment opportunities for Filipinos abroad, including Japan, Germany and Poland, become available.

“The country’s growth outlook remains positive,” World Bank Country Director for Brunei, Malaysia, Philippines and Thailand Mara K. Warwick was quoted as saying in a statement. “Higher private consumption due to lower inflation, steady growth of remittances, and election spending will fuel growth this year. Growth in public investment will be tempered in the first half of 2019 but is expected to recover in the second half of the year.”

A consumption-driven economy like the Philippines is backed by favorable demographics. According to multinational retail and commercial bank Banco Santander, the country has a youthful and vibrant consumer market. For instance, it said that Filipinos put great importance to shopping experience; they visit malls not only to make purchases but also to get along with their families or do some social activities.

“Philippine consumers enjoy visits to retail stores in which they are able to touch and feel the product, and value the services throughout the shopping process,” Banco Santander said in its Web site.




While aspiring Filipino middle-class consumers see shopping in modern retail as a representation of urban lifestyle, they don’t like ostentatious expenditure, the financial institution said, noting that they are conformist and spontaneous rather.

The Banco Santander also noted that Filipinos are among the most socially-conscious consumers in the world, with 86% of them are willing to pay extra for products and services that come from companies committed to positive social and environmental impact.

Moreover, the institution said that advertising also plays a significant role in increasing the consumer culture among Filipinos by portraying physical attractiveness and material goods as a gateway to happiness and success.

According to a KPMG report titled “Philippine Consumer Market Report,” published in 2017, income growth is the main factor behind the growth in consumption of Filipinos, and there are key drivers behind this expansion.

On the demand side, remittances from overseas Filipino workers (OFWs) have played a major role in the changes seen in the domestic economy in the last few decades, said the report.

“Money sent home from abroad by OFWs has become a large and steady source of income for households in the Philippines. A study by the Asian Development Bank (ADB) has pointed out that remittances allow households to spend more on non-essential goods and services. In particular, remittance-receiving households spend less on food as a proportion of income and spend more on clothing, communication, transportation and leisure,” the KMPG report said.

On the supply side, it said that rapid growth in the services sector has transformed the country into a predominantly service-based economy. Among the services subsectors, real estate, finance, trade, and telecommunications are considered as long-time leaders, while tourism is being acknowledged as fast-emerging and high-potential subsector.

Moreover, the business process outsourcing (BPO) services industry has emerged as a major source of employment and dollar-earner, the report added, noting that it is catching up with OFW remittances in terms of contribution to the economy.

As the report further explained, consumption behavior is changing as income grows, with those who earn more have greater spending power.

“One of the peculiarities of the Filipino consumer is that lower-income households tend to buy products that are smaller in volume or mass even if these turn out to be more expensive than larger packages in terms of unit costs. This is best seen in shampoos which are sold in sachets instead of in bottles and are very popular with consumers,” the KMPG report said.

This sachet culture — aside from the convenience of smaller product packages — may be attributed to low incomes of Filipino consumers in general. Many consumers cannot afford to buy in bulk even if these are more cost-effective on a per unit basis because the one-time costs are simply beyond their spending budgets, the report explained.

“But sustained income growth that significantly increases the incomes at the bottom of the population has the potential to alter this dynamic in consumer markets. It goes without saying that the behavior of consumers will differ according to their income levels,” the KMPG report said. — Mark Louis F. Ferrolino

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