UK think tank: ‘Revenge spending’ in PH likely over as savings dry up

MANILA, Philippines—“Revenge spending” by Philippine consumers locked down by one of the most stringent and longest COVID-19 quarantines that lasted more than two years likely already peaked at the start of 2022 and cannot be sustained as household savings dry up, the UK-based think tank Pantheon Macroeconomics said on Friday (June 10).

Citing the Philippine Statistics Authority’s (PSA) latest net sales index report, which showed that “consumers had a stonking start to 2022,” Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said the stronger-than-expected 8.3-percent gross domestic product (GDP) growth posted in the first quarter indeed “showed a resilience in private consumption.”

However, Chanco said that “what’s good for the first quarter isn’t necessarily great for the second quarter, especially now that we know with more certainty that catch-up growth in household spending is well and truly over.”

Chanco said his own estimates showed that while the volume of net sales by domestic manufacturers grew year-on-year in April, it was already slowing month-on-month for various reasons.

For one, “the support that remittances have given over the last nine months or so eventually will subside, as the additional year-over-year lift provided by the peso’s depreciation comes out of play,” Chanco said. While Chanco said he expects the cash being sent back home by Filipinos working and living overseas to continue flowing robustly this year, the gains from the weaker peso translating into more domestic currencies exchanged for the US dollar could slow by yearend.

Also, pointing to the Bangko Sentral ng Pilipinas’ (BSP) latest consumer expectations survey gauging consumer sentiment, Chanco said “the medium- to long-term outlook for spending continues to improve, but consumers still are a long way from their previous form.”

“The share of households who intend to splurge on big-ticket items over the next 12 months rose for a third-straight quarter in the first quarter, to 5.7 percent, on our adjustment. This, however, remains well below the 9.8-percent mark just before COVID-19 hit and the average of nearly 11 percent in the five-year period to 2019,” Chanco said.

While more Filipino consumers also planned to purchase real property, Chanco said “this could merely be reflecting the nascent turnaround in interest rate expectations.” Many central banks—including the BSP—have recently been aggressively raising interest rates to arrest high global inflation spilling over locally.

For Chanco, “the rebuilding of the massive amount of savings drawn down since 2020 will be the biggest macro headwind weighing on the consumption recovery this year.”

It would not help that “the more recent surge in inflation merely adds insult to injury,” Chanco said. The rate of increase in prices of basic commodities climbed to a 3.5-year high of 5.4 percent in May due to expensive food and oil mainly wrought by Russia’s prolonged invasion of Ukraine.

Chanco said his computations—taking away seasonal factors—had shown that the percentage of Filipino households with savings declined to 29.6 percent during the first quarter of 2022 from 31.2 percent in the fourth quarter of 2021.

“The decision by households to dip back into their savings in the first quarter in the face of the huge Omicron wave removes some of the sheen from that stronger-than-expected GDP print, as the above-trend increase in consumption then clearly is unsustainable and will come at the expense of the recovery’s vigor,” Chanco said.

Chanco said Pantheon Macroeconomics was standing pat with its 5.6-percent 2022 GDP growth forecast for the Philippines, way below the government’s downscaled 7 to 8 percent economic expansion goal for this year.

TSB