Fitch Solutions forecasts a 5.1 percent acceleration on household spending in the Philippines in 2022 from an estimated 3.5 percent this year, in line with the projected economic recovery starting this year.
Citing data from the Bangko Sentral ng Pilipinas (BSP), the country risk and industry research unit of Fitch Group, in a report dated October 28, 2021, said consumer confidence index in the country remains low at -19.3 in the third quarter but noted that this has significantly improved since the start of the pandemic.
BSP data show that consumer confidence index in the third quarter of 2020 is at -54.5.
While consumer spending already registered an improvement, Fitch Solutions said this remains affected by the recent upticks in coronavirus disease 2019 (Covid-19) surge – – the primary factor for the lockdowns again this year, which affected anew people’s confidence and their capacity to spend.
“Over 2022, consumer spending growth will begin to moderate, as the Filipino consumer continues its recovery from the contraction in 2020,” the report said.
Fitch Solution earlier announced its projected growth of the domestic economy, as measured by gross domestic product (GDP), this year at 4.2 percent while its 2020 forecast is 6.8 percent.
Relatively, the report said improvement in the domestic employment sector is seen to boost household spending in the coming months.
Unemployment rate went down to 6.9 percent in the third quarter this year from 8.7 percent in the previous quarter, it said.
Fitch Solutions projects the unemployment rate to average at 8 percent this year, an improvement compared to the 11 percent last year.
“While this is still higher than the pre-pandemic environment (the unemployment rate averaged 5.1 percent over 2019), it indicates an improving economic and employment environment, which will bolster consumer confidence and spending,” it said.
Also, Fitch Solutions said the elevated inflation rate is also affecting people’s capacity to spend.
Average domestic inflation as of end-September stood at 4.5 percent, higher than the government’s 2-4 percent target band until 2023.
Fitch Solutions forecasts average inflation this year at 4.5 percent.
Rate of price increases has been on the rise since the last quarter of 2020 due to supply constraints of pork, among others, because of the African Swine Fever, and the higher global oil prices.
Inflation peaked at 4.9 percent last August and monetary authorities forecast this to remain elevated before going to within-target level by the end of this year.
The report said “rising inflation is a key risk to consumer spending over the remainder of 2021, as it has the potential to erode purchasing power.
“However, we do not believe that these levels of inflationary pressures will derail our consumer outlook,” it added.