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Mild recovery in car market seen in 2019 but pressures remain

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THE CAR MARKET is expected to post a mild recovery in 2019, Fitch Solutions said in a report on Thursday, as it forecast sales to rise by 3.2% to 120,000 units next year.

“While we expect households and businesses will have adjusted to the higher vehicle excise taxes imposed under the Philippines’ Tax Reform for Acceleration and Inclusion (TRAIN) law in 2019, we believe that unfavorable economic conditions in the form of high interest rates, elevated inflation and a still weak peso will see car sales remain under pressure,” Fitch said.

It said over the full 2019-2027 forecast period, passenger car sales in the Philippines will average annual growth of 6.5%, to around 205,000 units by the end of 2027.

Sustained high inflation and a still weak peso will act as a drag on consumer spending and in turn on new car purchases in 2019, it said.

“Consumer price inflation (CPI) in the Philippines averaged 5.2% in the first 11 months of 2018, coming in higher than the Bangko Sentral Ng Pilipinas’ (BSP)’s target of 3±1%, on the back of high oil prices and a weak currency,” it said.

Fitch said that while its country risk team expects cooling oil and food prices to help rein in price growth over the coming months, they still forecast inflation to average 5.2% in 2019, remaining outside of the BSP’s policy target range.

“Providing upside to inflation will be the still weak local currency,” it said.

Fitch said its country risk team expects the peso weakness to continue but at a more gradual pace, with the peso averaging P55.57 per dollar next year.

“Given that around 60% of new cars sold in the Philippines are imported, a weak peso will place upside pressure on the cost of these vehicles,” it said.

“In addition to the above, we expect the BSP to continue with its rate hiking cycle in 2019, alongside the Fed, which will place upside pressure on pricing for auto loans,” it added.

Fitch said its country risk team expects the central bank to raise its policy rate by 50 basis points in 2019, taking the rate to 5.25% by end-2019.

“As a result, the cost of borrowing in the country will rise, which will in turn weigh on the consumer’s ability to take on financing in order to make new car purchases,” it said.

The unfavorable macroeconomic conditions could act as a drag on consumer confidence, and in turn growth in big-ticket item purchases, Fitch said. — Victor V. Saulon