In an analysis, Fitch Solutions Macro Research said stubbornly high inflation and a still weak peso could erode the purchasing power of Filipino consumers and, in turn, act as a drag on new car purchases in 2019.
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Fitch: ‘Unfavorable’ economic conditions to crimp Philippines' car sales
Ian Nicolas Cigaral (philstar.com) - December 6, 2018 - 4:27pm

MANILA, Philippines — “Unfavorable” macroeconomic conditions in the form of high interest rates, elevated inflation and a weak currency would likely weigh on the Philippines’ auto sales next year, a Fitch unit said, although a “mild recovery” may be ahead.

In an analysis sent to reporters Thursday, Fitch Solutions Macro Research said stubbornly high inflation and a still weak peso could erode the purchasing power of Filipino consumers and, in turn, act as a drag on new car purchases in 2019.

Given that around 60 percent of new cars sold in the Philippines are imported, a currency slump could jack up the cost of these vehicles, Fitch Solutions reported.

Meanwhile, rising borrowing costs could place “upside pressure” on pricing for auto loans, Fitch Solutions also said.

Citing a decline in consumer confidence recorded by the central bank in the third quarter, the think tank added that the “pessimistic outlook” by consumers for the next 12 months would not bode well for their intentions to buy new vehicles.

Households reeling from soaring prices since the beginning of the year finally got their much-awaited reprieve in November, which saw a four-month low inflation rate of 6 percent on the back of slower price increments for food and tumbling oil prices.

READ: Inflation cools down for the first time in 2018 in November

With inflation seen abating moving forward, some analysts said the Bangko Sentral ng Pilipinas can now afford to end its tightening cycle and eventually begin to loosen policy. The BSP has delivered rapid-fire interest rate hikes of 1.75 percentage points since May, among the most aggressive adjustments in Asia.

Contrary to the BSP’s prediction that inflation may return to the government’s 2-4 percent target range in 2019, Fitch Solutions said inflation will likely average 5.2 percent next year. Policy rates may also rise by 50 basis points in 2019, it added.

Fitch Solutions also projected the Philippine peso to depreciate at a “more gradual pace” and end 2019 averaging P55.57 against the US dollar.

“We expect these unfavourable macroeconomic conditions to act as a drag on consumer confidence, and in turn growth in big-ticket item purchases,” the Fitch Group unit said.

Recovery

Data of the Chamber of Automotive Manufacturers of the Philippines Inc. and the Truck Manufacturers Association show total vehicle sales dropped for the ninth straight month in October to 9.2 percent, or by 33,150 units, from 36,511 a year ago.

The nine consecutive months of year-on-year declines come in the wake of the increase in automobile excise taxes that took effect in January, as well as amid tighter credit conditions after the central bank started raising benchmark interest rates to fight inflation.

FROM BUSINESSWORLD: Auto sales drop for ninth straight month in October

According to Fitch Solutions, households and businesses “will have adjusted” to the higher vehicle excise taxes next year.

Fitch Solutions also said that in 2019, it expects “a mild recovery in the Philippines' new passenger car market, and forecast sales to grow by 3.2 percent, reaching a total of around 120,000 units by year-end.”

“Over our full 2019-2027 forecast period, we forecast passenger car sales in the Philippines to average annual growth of 6.5%, reaching a total of around 205,000 units by the end of 2027,” it added.

FITCH SOLUTIONS PHILIPPINE INFLATION
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