‘Consumer spending to fuel GDP rebound’

MANILA, Philippines — A strong rebound in consumer spending would fuel the expected economic recovery next year, a unit of credit watchdog Fitch Ratings said.

In its latest commentary, Fitch Solutions Country Risk & Industry Research said household spending in the Philippines would recover with a growth of 5.7 percent in 2021 after contracting by eight percent this year.

“We forecast household spending in the Philippines to return to growth in 2021, after the COVID-19 pandemic led to a contraction in consumer spending in 2020. In the Philippines, an improving economy in 2021 will feed through to better employment figures, supporting household disposable incomes, along with ongoing government stimulus measures,” it said.

The research arm of the Fitch Group expects all consumer spending categories to return to growth next year, with the food and non-alcoholic drink segments being prioritized in household budgets in 2020.

Spending within other consumer categories is estimated to record significant contractions over 2020, as households cut spending on non-essential items, and would grow from a relatively lower base over 2021.

Recreation and culture spending would grow 15.3 percent next year after contracting by 17.8 percent this year, furnishing and home spending by 13.7 percent from -15.2 percent, restaurants and hotel spending by -10.5 percent from -16.8 percent, alcoholic drinks and tobacco spending by 10.4 percent from -16.7 percent, clothing and footwear spending by 8.9 percent from -15.6 percent as well as food and non-alcoholic drinks spending by 5.3 percent from 9.3 percent.

The Philippines slipped into a pandemic-induced recession, with gross domestic product (GDP) contracting by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter as the economy stalled when Luzon was locked down since mid-March to curb the spread of the coronavirus disease.

Fitch Solutions sees the country recovering with a GDP growth of 6.2 percent next year after contracting by 9.1 percent this year, helping reduce unemployment rate to nine percent next year from 16 percent this year.

“However, this is still double the 4.5 percent unemployment rate we estimate for the pre-COVID-19 environment in 2019, suggesting that household spending will still face elevated pressure from higher than normal rates of unemployment. We also note that there is a risk of increased underemployment,” it said.

It added people returning to work, but working fewer hours than pre-COVID-19, or taking lower paying jobs would put downside pressure on disposable incomes.

Furthermore, Fitch Solutions said government stimulus measures including the P205-billion cash support program, the small business wage subsidy program and the P120-billion guarantee program would support the recovery in consumer spending next year.