MANILA, Philippines — Household spending in the Philippines may make a full recovery from the impact of the pandemic-induced recession next year on the back of improving consumer confidence, according to Fitch Solutions Country Risk & Industry Research.
In a report, the research arm of the Fitch Group said household spending may rise at faster pace of 5.1 percent next year from the projected 3.5 percent this year after a significant contraction last year due to COVID.
“While consumer spending growth began to recover in 2021, it was significantly weighed down by the third and fourth wave of domestic COVID cases. Over 2022, consumer spending growth will begin to moderate, as the Filipino consumer continues its recovery from the contract,” Fitch Solutions said.
It expects the Philippines’ unemployment rate to improve to eight percent next year from 11 percent this year, still higher than the pre-pandemic level of 5.1 percent in 2019.
“While this is still higher than the pre-pandemic environment, it indicates an improving economic and employment environment, which will bolster consumer confidence and spending,” it said.
Based on the third quarter 2021 Consumer Expectation Survey of the Bangko Sentral ng Pilipinas (BSP), the overall confidence index of consumers remained negative for the fifth straight quarter at -19.3 percent in the third quarter, albeit a big improvement from the 30.9 percent in the second quarter.
“This better outlook stems from expectations that there will be more jobs, higher income, looser restrictions, and more businesses reopening,” Fitch Solutions said.
Fitch Solutions expects the Philippines to recover strongly with a gross domestic product (GDP) growth of 4.2 percent this year and 6.8 percent next year after shrinking by a record 9.6 percent last year.
Economic managers, through the Development Budget Coordination Committee (DBCC), see the country’s GDP growing by four to five percent this year and by seven to nine percent next year.
Fitch Solutions said risks to consumer outlook include inflation hitting the bottom line, higher interest rates, bottlenecks in global supply chain, and increasing taxes to pay for stimulus.
“The spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs. While this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over 2022,” it said.
It noted supply chain issues and bottlenecks are resulting in product shortages such as the global semiconductor shortage.
Fitch Solutions emphasized the need to vaccinate a large enough proportion of the population and experience a notable drop in COVID infections and a decline in hospitalization rates.
“Both these factors will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales. The government has stated that restrictions cannot be lifted until mass vaccinations have taken place,” it said.
The research arm said 25.1 percent of people in the Philippines had received at least one vaccine dose as of end- September, less than half the 52 percent average in Asia.
According to the Oxford COVID-19 Government Response Tracker, restrictions in the Philippines remain relatively stringent, with a Stringency Index score of 74.5 out of 100 as of Oct. 18.
“We believe, however, that restrictions will ease further as more Filipinos receive COVID- 19 vaccines,” Fitch Solutions said.