Fitch Ratings projected 2021 household spending growth at 5.7% on pent-up demand for recreational and cultural activities that had been shut down by the pandemic, with th government also continuing to deploy stimulus packages and as more people return to work.
Fitch Ratings said in a report Friday that the projection, if borne out, would represent a rebound from its 2020 forecast of an 8.8% contraction in household spending. In 2019, spending grew 5.5% in 2019.
Fitch Ratings said that in 2021, spending on recreation and culture will rise 15.3% after an expected contraction of 17.8% this year. Spending on furniture and household goods will rise 13.7% next year after a forecast contraction of 15.2% in 2020. Restaurant and hotel spending will grow 10.5% next year after an expected decline of 16.8% in 2020. Spending on alcoholic drinks and tobacco will rebound to growth of 10.4% next year after a contraction of 16.7% this year.
It expects spending growth on clothing and footwear of 8.9% in 2021 after a projected decline of 15.6 this year. Spending growth for food and non-alcoholic beverages is expected to ease to 5.3% from forecast 2020 growth of 9.3%.
“Food and non-alcoholic drink spending were prioritized in household budgets in 2020, and so growth in spending on these items, while remaining positive, will be slightly lower in 2021,” Fitch Ratings said.
It noted the effects of government stimulus measures amounting to P595.6 billion or 3.1% of gross domestic product (GDP) which is going into cash aid, tax reductions, and wage subsidies for workplaces affected by the lockdown.
The government allocated P205 billion for two months’ worth of cash aid of at least P5,000 per month to 18 million low-income households and subsidized companies that retained their employees, making payouts sufficient to keep 3.4 million at work.
It projected GDP growth of 6.2% next year, with unemployment declining to 9% from 16% in 2020. It expects GDP to contract by 9.1% in 2020.
It said unemployment next year will remain high compared to pre-pandemic levels.
“This is still double the 4.5% unemployment rate we estimate for the pre-COVID-19 environment in 2019, suggesting that household spending will still face elevated pressures from higher-than-normal rates of unemployment,” Fitch Ratings said.
It also expects a deterioration in work conditions and a potential rise in prices to slow household spending over the next year.
“We also note that there is a risk of increased underemployment. People returning to work, but working fewer hours than pre-COVID-19, or taking lower paying jobs will put downside pressure on disposable incomes,” Fitch Ratings said.
“With the recovery forecast for 2021, demand-side pressure will push up prices, to an average of 3.0% over the year,” it added.
Fitch Ratings said growth in household spending will be maintained as long as the government curbs the spread of COVID-19 and allows greater mobility under relaxed quarantine measures.
It added that further progress in vaccine development, which could lead to mass vaccinations by the first half of 2021, will serve to accelerate household spending. — Kathryn Kristina T. Jose