UK think tank: Inflation, savings depletion threaten 2022 PH GDP growth

MANILA, Philippines—The Philippines’ mainly consumption-driven economic growth would be beset by high inflation and shrinking savings amid the prolonged COVID-19 pandemic, UK-based think tank Pantheon Macroeconomics said.

In a report on Friday (April 8), Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said that “sales volumes in the Philippines are plateauing below the pre-pandemic level, disconcertingly,” citing the volume of net sales index in the February monthly integrated survey of selected industries (Missi) report last Thursday.

Chanco’s estimates showed that net sales, while growing double digits year-on-year, remained about 4 percent below 2019 levels. “Crucially, the picture looks set to get worse before it gets any better, with the sales data yet to reflect the recent surge in price pressures, sparked by the invasion of Ukraine in late February.”

In a report last Wednesday, Chanco raised his 2022 inflation forecast for the Philippines to 3.9 percent from 3.5 percent previously, remaining within the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target band of manageable price hikes. The BSP’s own projection for this year was an above-target 4.3-percent average rate of increase in prices of basic commodities amid global oil and commodity price shocks wrought by the barbaric assault by Vladimir Putin on Ukraine.

“An acceleration in GDP [gross domestic product] growth this year isn’t a given, in spite of the half-hearted and incomplete bounce in 2021 and the country’s likely more sustainable exit from COVID-19-crisis mode,” Chanco said.

“Our 5-percent forecast for 2022 is underpinned primarily by expected sharp slowdowns in government spending and investment in the face of election-related headwinds,” Chanco said. The government targets 7 to 9 percent GDP growth in 2022.

“We expect consumption to be fairly uninspiring as well, with the rebuilding of the massive savings lost in the last two years expected to mute the size of quarterly gains. The breakdown of household debt shows painfully how much the pandemic has stretched personal finances to the point where people have had to rely more on loans just to buy everyday items,” Chanco said, citing the BSP’s latest consumer expectations survey (CES).

“To be sure, as a share of total consumer credit, these loans have fallen from a peak of 28 percent in the second quarter of last year to 18 percent as of the fourth quarter. Nevertheless, it still is miles above the 8-percent pre-COVID-19 level in the first quarter of 2020.”

For Chanco, remittances or cash transfers from Filipinos working and living abroad “need to work much harder.”

“Remittances still aren’t rising fast enough to justify a continuation of double-digit sales growth. Admittedly, households are getting much more bang for each buck, due to the sharp turnaround of the peso’s fortunes in the middle of 2021,” Chanco said.

“In the past, a rapid rate of remittances growth likely would have been enough to provide a material cushion to the coming moderation in sales growth. But today is different, as fewer and fewer households are using remittances for big-ticket purchases,” Chanco said.

“The share of recipient households who use part of these transfers for day-to-day spending has been relatively stable since COVID-19 hit, at 96 percent,” Chanco noted.

“However, the pandemic appears to have accelerated the structural decline in the use of this cash for appliances and other durable goods, while remittances are also being geared less towards bigger-ticket items, such as cars and homes. More than ever, people are using remittances for investment and other unclassified purposes,” Chanco added.

It did not help that “the drop in unemployment has stalled,” Chanco said.

“The recovery in the labor market looks to be hitting a premature ceiling, too, weighing on the outlook for consumption. Indeed, the unemployment rate is struggling to fall below 6 percent , hovering some 2 percentage points (ppt) above the pre-COVID-19 level.”

Last Thursday, the government reported that the unemployment rate stayed at the pandemic’s lowest of 6.4 percent in February, although the number of jobless rose to 3.13 million as more and more Filipinos in the labor force looked for work amid further economic reopening.

TSB