Household spending to fully recover in 2022
MANILA, Philippines — The consumer and retail sector in the Philippines is seen fully recovering from the impact of the COVID-19 pandemic next year after a major slump last year, according to Fitch Solutions Country Risk & Industry Research.
In its latest commentary, “Philippines consumer outlook: Spending recovery from COVID-19 to spill into 2022,” Fitch Solutions said real household spending is seen growing by four percent this year after contracting by 8.3 percent last year due to the global health crisis.
Due to the COVID-19 pandemic and related lockdown measures, consumer spending in the country is seen hitting P10.6 trillion this year, still below the pre-pandemic level of P11.1 trillion in 2019.
For 2022, Fitch Solutions sees household spending growing by another 5.1 percent to P11.2 trillion.
“As a result, we believe that a full recovery of Philippines’ consumer and retail sector will only take place in 2022, with more conventional growth returning in 2023,” it said.
The research arm of the Fitch Group expects unemployment rate in the country to improve to 11 percent this year from 14.5 percent in 2022 and from the record 17.7 percent peak at the height of the lockdown in Luzon in the second quarter of last year.
The government managed to bring down the unemployment rate to 5.1 percent in 2019 prior to the COVID-19 outbreak.
“While this is still higher than a pre-COVID environment, it indicates an improving economic and employment environment, which will bolster consumer confidence and spending,” Fitch Solutions said.
It pointed out that consumer recovery rests on the vaccination drive as the country continues to lag behind the 27.1 percent vaccination rate in Asia, with only 9.9 percent of the Philippine population so far receiving one dose as of July 23.
“As such, we believe that most COVID-19-related restrictions will only be removed in the late 2021,” Fitch Solutions said.
The Philippines slipped into recession with a record 9.6 percent gross domestic product (GDP) contraction last year after the government imposed the longest and strictest lockdown in the world. The pandemic-induced recession stretched to five quarters as the GDP shrank by 4.2 percent in the first quarter amid the resurgence of infections.
The Cabinet-level Development Budget Coordination Committee (DBCC) sees a recovery over the next two years, with a GDP growth of six to seven percent in 2021 and seven to nine percent in 2022.
On the other hand, Fitch Solutions sees the country’s GDP expanding by 5.3 percent this year and by 6.5 percent next year. Consumer spending is a main driver of economic growth, contributing about 73.5 percent of GDP.
It added rising inflation would be a key risk to consumer spending over the remainder of the year as it has the potential to erode purchasing power.
The Fitch research unit sees inflation accelerating to four percent this year before easing to 3.4 percent next year. Inflation averaged 4.4 percent in the first half of the year after slowing to 4.1 percent in June from 4.5 percent in May but remained above the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).
“We do not believe that these levels of inflationary pressures will derail our consumer outlook,” Fitch Solutions said.
After unleashing P2.2 trillion via COVID-19 response measures, the BSP has committed to maintain an accommodative policy stance until the economy fully recovers from the impact of the global health crisis.