CONSUMPTION is likely to recover with a 4% increase in household spending this year, although the consumer and retail sectors are only expected to return to pre-pandemic levels by 2022, Fitch Solutions Country Risk & Industry Research said.

“This better outlook comes from expectations that there will be more jobs and better incomes, fewer quarantine restrictions, and more businesses reopening,” it said in a note Thursday.

Total household spending is expected to hit P10.6 trillion this year, which is still lower than the P11.1 trillion logged in 2019 prior to the pandemic, it added. By 2022, household spending is projected to grow by 5.1% to P11.2 trillion.

Fitch Solutions warned that the consumer spending outlook remains clouded by the delayed vaccine rollout as well as the emergence of new coronavirus variants.

Consumption accounts for about 70% of the economy. It fell by 8.3% last year and continued to shrink by 7.3% in the first quarter.

Gross domestic product contracted by a record 9.6% in 2020 and continued to fall 4.2% in the three months to March. This year, the government is projecting 6-7% growth.

Consumer confidence remains weak although it has improved, Fitch Solutions said. This is affecting household consumption behavior.

“Our Country Risk team expects household savings rates to remain elevated given the pandemic uncertainty and loss of income over past quarters, while the domestic employment situation is unlikely to improve markedly in the near term,” it explained.

The consumption-driven economy is only expected to fully recover by 2022, “with more conventional growth patterns returning in 2023.”

“Economic growth will be underpinned by consumer spending, easing unemployment, and a continued recovery in the country’s tourism industry,” it added.

Fitch Solutions in May lowered its growth forecast for the Philippines this year to 5.3% from 5.8% previously. It blamed the infection surge, renewed lockdown restrictions earlier in the capital region, and low vaccination rates for the dimmer outlook. — Luz Wendy T. Noble