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Consumer spending growth to ease -- BMI

Posted on June 12, 2017

GROWTH in consumer spending will likely ease over the next five years on the back of rising commodity prices and a weaker peso, analysts at BMI Research said, adding this could cause overall economic growth to slow in the same period.

Consumer spending has consistently been a key growth driver of the Philippine economy, accounting for more than 60% of GDP. BW FILE PHOTO
“Household spending in the Philippines will experience a modest deceleration in growth over 2017 on the back of accelerating consumer prices,” the Fitch Group unit said in a June 6 report.

“Real growth will also experience modest growth at an average annual rate of 5.4% between 2017 and 2021, slightly above the average annual growth rate of 5.1% between 2000 and 2014.”

That, in turn, would be much slower than the 7-8% gross domestic product (GDP) growth the government hopes to achieve starting next year in order to achieve targets in underemployment and poverty reduction by 2022.

Consumer spending has consistently been a key growth driver of the Philippine economy, accounting for more than 60% of GDP.

Inflation has been trending above 3% for the last four months, with the five-month average at 3.1%. The Bangko Sentral ng Pilipinas (BSP) expects overall price increase of widely used goods and services to average 3.4% this year, well within a 2-4% target range and significantly higher than 2016’s 1.8% pace.

BMI analysts said household spending will likely expand by an average of 9.3% from 2017 to 2021. However, spending slowdown would be “significant” when expressed in dollar terms, with growth expected to settle at 0.8% this year from 6% in 2016 under the pressure of a weaker peso, the research group said.

Consumption growth will likely be “modest” over the next five years, with Filipino families likely to spend the bulk of their funds on essentials such as food, utilities, and transportation, which would likely account for 75% of household spending.

“We expect spending patterns in the Philippines to remain fairly static over the medium term with the top three spending categories retaining their positions,” BMI said, while noting that rising incomes would likely prompt families to spend more on “non-essential” activities or upgrade to “higher-quality” items and services.

In particular, spending on food, drink, and tobacco products is expected to account for over a third of total spending, the group said.

An emerging middle class is likely to boost the retail market, particularly for fashion and clothing.

“As the middle-income bracket increases, the Philippines’ fast fashion retail market will offer vast opportunities for investors over the medium term,” the report read.

“Fashion retailers will be able to capitalize on the growing working-age population, who will have the income to spend on fashion. Retailers will also be able to establish brand loyalty among the growing fashion-conscious younger demographic,” BMI economists said, citing the case of Swedish store H&M.

Higher wages will also prompt Filipinos to make big-ticket purchases that, in turn, could lead to a surge in spending on household goods like furniture.

Consumer confidence hit a fresh all-time high in second quarter, according to the BSP’s latest survey, with rising optimism across income groups amid perceived improvements in government policies and in the overall peace and order situation as of April. The central bank cited a high correlation between consumer optimism and economic growth, as strong retail spending assists overall expansion. -- Melissa Luz T. Lopez