Higher Consumer Spending is Now Evident
It looks like the fourth-quarter consumer spending will keep the Philippine economy afloat this year, based on increased mobility and hectic commercial activities in Metro Manila and other urban centers in October and early part of November.
The extended weekend, because of the Barangay and SK elections as well as the observance of All Saints’ Day and All Souls’ Day, provided families with an opportunity to travel and spend some leisure time in their hometowns.
The massive amount of money that circulated in the provinces in those days supported countless businesses such as printers, flower vendors, bus companies, restaurants, grocery chains, and shopping malls, to name a few. It should bump up the gross domestic product (GDP) growth in the fourth quarter, which covers the months of October, November and December.
The fourth quarter normally has the highest contribution to the GDP. In 2022, this period accounted for 28 percent of the economic output, taking into account the impact of the main harvest season and the release of 13th-month pay and bonuses in the government and the private sector.
While the GDP growth eased to 4.3 percent in the second quarter from 6.4 percent in the first quarter this year, there are indications that growth picked up in the third quarter and would accelerate further in the fourth quarter.
Household spending remains robust despite the hawkish stance of the Bangko Sentral ng Pilipinas (BSP), which recently delivered a 25-basis-point interest rate hike in an off-cycle move that brought the overnight borrowing rate to 6.5 percent from just 2 percent at the height of the pandemic. Bank borrowers already felt the pinch of the BSP’s monetary tightening cycle when they saw their monthly mortgages increase this year.
Consumers, however, are not about to lose hope. In fact, bank loans continue to grow, per the BSP report. Latest data show that outstanding loans of universal and commercial banks (U/KBs), net of reverse repurchase (RRP) placements with the BSP in August 2023, were still 7.2 percent higher, compared to the same month last year. This signals that the economy remains healthy.
Consumer credit, in particular, grew 22.7 percent year-on-year in August on higher demand for credit card and car loans. BSP Deputy Governor Chuchi Fonacier even sees a sustained increase in the use of credit cards amid the positive macroeconomic prospects that provide the backdrop for robust spending.
She said despite the higher inflation and interest rates, the latest BSP surveys indicate a more upbeat outlook for Filipinos for the next quarter and beyond due to the higher number of jobs, security of tenure and higher income from remittances and other sources. The BSP official noted the upbeat loan demand, powered by higher consumption and more attractive bank financing terms.
A market study validates the frenzied spending this year. Kantar, a marketing data and analytics company, expects Filipino households to increase spending on food and beverage items during the holidays. Per the Kantar survey, there is usually a 7-percent spending increase on the fast-moving consumer goods (FMCG) segment during the holidays.
It says Filipinos look forward to having a merry Christmas celebration in 2023, on the back of expected bonuses and in observance of long-held family traditions. The study says Filipinos spend 11 percent more on food and 9 percent more on beverage categories during the holidays. The increased household spending will be particularly good for the retail sector.
I share the general sentiment that we will have more vibrant business activities in the fourth quarter, starting with the retail industry. This improvement will eventually translate into the growth of other sectors, such as manufacturing, agriculture, finance, logistics and services. Real estate and construction will soon catch up.
The growth of these industries will have a positive effect on government finances. Per Department of Finance (DOF) Secretary Benjamin Diokno, the dynamic economic environment in the fourth quarter would result in improved revenue collections this year.
The expected deceleration in inflation in the fourth quarter could also provide support to consumption. Inflation, which hit 6.1 percent in September, is seen softening in the coming months on stabilizing food and fuel prices.
The government expects bumper rice harvest this quarter, as no major typhoons disrupted crop production in recent weeks.
All told, we can expect a better growth in the fourth quarter. Let us hope that this will carry over to 2024 in line with our goal to sustain a rapid and inclusive growth for the benefit of every Filipino.