HOUSEHOLD SPENDING SEEN DROPPING 6.5% ON COVID’S IMPACT

HOUSEHOLD consumption—a major driver for the Philippines’ economic recovery—is seen to decline by 6.5 percent this year due to a surge in joblessness and lockdown measures imposed by the government amid the coronavirus disease 2019 (Covid-19) pandemic, a bank official said.

Frederico Rafael D. Ocampo, BDO Unibank Inc.’s senior vice president and head of Trust and Investment Group-asset Management, noted that household spending accounted for 72 percent of GDP last year. Bulk of this is represented by food, nonalcoholic beverages and other essentials.

However, with many Filipino consumers staying at home and observing physical distancing, the bank official said, “there’s not much consumption going on.”

At a webinar hosted by the Financial Executives of the Philippines (Finex) on Tuesday, he said, “The Philippines was one of the most severely affected in the Asean region in terms of people going out to the workplace, retail or malls, transit stations, grocery stores.”

In fact, this is evidenced already by the first-quarter figures, Ocampo said, stressing that the lockdown was only imposed in two weeks out of the three-month period.

Private consumption in the first quarter only grew by 0.2 percent. Spending on non-essentials, recreation, transport, hotels, alcoholic beverages and tobacco all went down.

BDO is expecting household consumption to contract in the next quarters: 15.1 percent in the first quarter, 8.2 percent in the second quarter, and 3.2 percent in the fourth quarter. For the full year, this brings the figure to a 6.5-percent plunge, which is markedly lower compared to the 5.9-percent growth in 2019.

The jobs factor

MEANWHILE, Ocampo flagged the substantial increase in unemployment, noting that employment is supporting the household spending.

At least 5 million Filipinos lost their jobs in April following the pandemic-induced lockdown in several parts of the country, according to the Philippine Statistics Authority. This translates to 17.7-percent growth in unemployment year-on-year.

The Sy-led bank was expecting the economy to grow by 6.5 percent prior to the pandemic. It has revised its outlook to 5.9-percent contraction since, adding that a 3.3-percent growth is expected for next year on the back of the government’s stimulus package.

With a recovery anticipated next year, BDO said household consumption might grow by 2 percent in 2021.

Fitch Solutions in May downgraded its household spending outlook for the Philippines to 3.4 percent this year from 5.8 percent earlier as consumers will likely focus only on the essentials like food and health-related expenses.

According to a survey conducted by the BSP, the country’s spending outlook index of household on basic goods and services slumped to 33.3 percent for the second quarter from 37.1 percent a quarter ago.

Aggressive stance

OCAMPO said that BSP is among the “more aggressive” central banks in terms of policy and reserve requirement cuts.

The Monetary Board in June trimmed the interest rate on BSP’S overnight reverse repurchase facility by 50 basis points (bp) to 2.25 percent, bringing deposit and lending rates to 1.75 percent and 2.75 percent, respectively.

On Tuesday, the Central Bank also reduced the reserve requirements of thrift banks, rural and cooperative banks by 100 bp to increase lending capacity for micro, small and medium enterprises.

The BSP earlier approved cutting the reserve requirements of universal/commercial banks and nonbank financial institutions with quasi-banking functions by 200 bp as well.

The BDO official said that the lower interest rates could help the businesses recover. “This [lower interest rate] should help the private sector and business to stimulate and expand,” he explained.

However, as observed, the large companies and conglomerates in the country have been reducing capital expenditures by an average of 30 percent, Ocampo said.

Some businesses, he added, have also trimmed operational expenses, cut salaries and laid off employees as cash-saving measures.

Resilient peso

AMID the pandemic, Ocampo said that the Philippine peso has remained strong, noting that it has recorded a return of 2.4 percent in the January-to-july period. This made the peso the best performing currency in Asia so far.

He attributed the strength of the currency to the weak demand for dollars due to lower imports.

“Both the government and private sector have deferred imports. This resulted in a narrower, rather than wider, trade deficit,” Ocampo said.

He pointed out that the country’s offshore borrowings have boosted its dollar reserves, too.

The BSP recently reported that the country’s gross international reserves reached an all-time high of $93.32 billion as of end-june. This can cover 8.4 months’ worth of imports of goods and payments of services and primary income.

On Tuesday, the peso weakened slightly to P49.39 against the greenback from P49.375 the previous day, according to data from the Bankers Association of the Philippines.

Major risks

THE rising Covid-19 cases remain to be a key concern to economic recovery, Ocampo said.

“We are just in the first wave,” he stressed. “The Philippines was never able to flatten the curve and so our cases just keep rising.”

Ocampo said that this would stress out the public health system.

He also said that the country should look out for the unemployment figures and delays in government spending.

Apart from these, the re-escalation of tensions between the United States and China is seen to be a major risk.