Monday, 15 June 2009

Philippines continues to pin hopes on consumer spending

Jun Vallecera
Business Mirror

CONSUMER spending, a key growth driver, was seen on Friday to hold its own against the onslaught of recessionary pressures in the second half, helping push the economy forward as fast as 1.8 percent in terms of the gross domestic product.

Latest data on consumer expectations, where the number of pessimists still outnumber optimists, indicated this sentiment, according to Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr.

“Indeed, the latest Consumer Expectations Survey indicates that buying intentions, particularly for big-ticket items, are expected to remain steady in the next 12 months,” Tetangco said.

The admission means consumption activities were likely to remain flat in the coming months—rather than contract as seen by the International Monetary Fund (IMF), for example.

Consumption grew by only 0.8 percent in the first three months, just enough to push local output past the feared no-growth point to 0.4 percent in the first quarter.

Its continued expansion, Tetangco said, gives the economy hope that overall growth remains possible for the Philippines this year even as most of its neighbors have already gone into recession.

“Such confidence would certainly provide support for improvement in consumption going forward,” he said.

He said a review on macroeconomic performance in the first quarter established that most Filipinos with disposable income tended to save rather than spend during the period, driving down consumption spending as a consequence.

A similar review conducted earlier by the New York-based think tank Global Source came to the same conclusion, saying, “the numbers suggest . . . a drastic tightening of spending by households worried about future incomes and choosing to save whatever gains they receive, whether from declining inflation or tax cuts.”

Days before the release of that report, a special report by the BusinessMirror Research Staff indicated that “surprisingly frugal OFW kin” could dent growth, citing the tendency of OFW-reliant families to hold back on spending, given the tide of retrenchments both in the country and in labor-hosting countries; and the uncertainty of when recovery could come.

Tetangco said, nonetheless: “The BSP hasn’t yet revised its zero-growth outlook for remittances. This will be reviewed shortly.”

Philippines authorities are apparently joining the trend to pin their hopes on the so-called “green shoots.”

“As more signs of a slowing of the contraction in global economies are seen, the public’s confidence is expected to rise and therefore precautionary savings would fall,” Tetangco said.

The government found it odd that consumption would so suddenly weaken in the face of continued positive growth rate averaging 2.7 percent in the first two months. [Maybe NSCB figures should be examined?]

Exports contraction also eased a bit during the period even as import activities also dropped by an even larger margin.

Tetangco’s continued optimism was also grounded on observation that consumer inclination to spend for big-ticket items improved from negative 17.5 percent in the first quarter to negative 15.8 percent in the second quarter. [CLICK HERE FOR CENTRAL BANK REPORT.]

Big-ticket items include the purchase of houses and lots, cars and even household appliances as refrigerators and television sets.

For this reason, he vowed to “continue to endeavor to create an environment of stable prices that could further encourage consumption.”

Bullish on growth

The monetary authorities refused to give up hope the economy will continue to grow and not slide instead into recession this year.

Tetangco bared the hope in the wake of an IMF forecast the local economy will contract deeper than originally seen to negative 0.1 percent instead of the revised forecast of zero- or no-growth scenario.

“We are still forecasting positive growth this year, albeit at a slower [rate] than previous forecast,” Tetangco said in an e-mail.

The hope is that local output, measured as the gross domestic product, would continue to expand at a rate ranging from 0.8 percent to 1.8 percent this year.

“As reported, consumption and investments, which slowed significantly in the first quarter, are expected to recover in the next quarters, supported by steady remittances, the full impact of the Economic Resiliency Program and improvement in market confidence as more news/data are released that the worst in global contraction may be over,” he said.

Consumption slowed to growth of just 0.8 percent from year ago of 5.1 percent, confounding the government, which expected sustained growth in the face of healthy overseas Filipino remittance levels during the period.

OFW remittances grew by 2.7 percent in the first two months, helping fuel consumption spending that accounts for roughly 80 percent of GDP.

Government had been hard put explaining why local output narrowly escaped a contraction in the first quarter, when the bulk of its fiscal stimulus had been advanced during the period.

Finance Secretary Margarito Teves said some 60 percent of its infrastructure spending for the year had been released in the first quarter to optimize the growth potential.

The disappointing growth of just 0.4 percent in the first quarter only magnified the country’s vulnerability to the ongoing global economic downturn, experts said.

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