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Weak peso to weaken consumer spending

(Source: Manila Standard | June 12, 2017)

Household spending in the Philippines is expected to post a slower growth this year because of rising consumer prices and a weaker currency, Business Monitor International, a unit of Fitch Group, said in a report over the weekend.

“In US dollar terms, household spending growth will experience a significant deceleration from 6 percent in 2016 to 0.8 percent in 2017 as we forecast the Philippine peso to depreciate against the US dollar over 2017,” BMI said.

“With that said, household spending will grow at an annual average of 8 percent between 2017 and 2021, reaching $337 billion up from $232 billion in 2017,” it said.

BMI expects essential spending to remain dominant over its forecast period and account for 74 percent of total household spending in 2017 and 75 percent by 2021.  Essential items include food, beverage, housing, clothing, utilities and basic services.

Essential spending is expected to grow at an average annual rate of 9.5 percent between 2017 and 2021, with non-essential spending growing at an average rate of 8.4 percent over the same period.

“As a result of low average incomes and a large rural population, essentials will continue to account for the majority of household spending in the medium term at least. Food and non-alcoholic drinks, housing and utilities and transport will continue to account for the majority of household retail spending, rising from 74 percent of total spending in 2017 to 75 percent by 2021,” it said.

The increasing cost of housing and utilities will demand a greater portion of household income over the coming years. Albeit declining, the share of household spending on food and drink will remain the largest, forecast at 37.3 percent in 2021 (down from 38 percent in 2017), it said.

“Non-essential spending is expected to continue to account for a roughly stable portion of total household retail spending over our forecast period. Real wages are steadily on the rise, however, which should boost spending in the non-essentials sector over the long term, and will prompt consumers to upgrade to higher quality essentials,” BMI said.

Household spending in the Philippines is dominated by spending on food and non-alcoholic drinks; housing and utilities and transport, which accounts for 69 percent of total spending. BMI expects spending patterns in the Philippines to remain fairly static over the medium term with the top three spending categories retaining their positions.

“Housing and utilities will make the greatest gains over our forecast period, increasing by 1.15 percentage points as a proportion of total spending on the back of rising costs in this segment. Food and non-alcoholic drinks spending will experience the largest decline over this period, registering a decline 0.7 percent as a proportion of total household spending,” it said.

“Food and non-alcoholic drinks account for the largest share of retail spending in the Philippines, at 38 percent of total household spending in 2017. We expect that the sub-sector will maintain its dominant role in the Philippines’s retail basket, as low household income levels in the country encourage subsistence-based spending,” it said.

 

Households are forecast to spend P4.4 trillion on food and non-alcoholic drinks in 2017, while spending another P190 billion on alcoholic drinks and tobacco. BMI said over the medium term, food and drink will continue to dominate household spending, as overall income levels remain low.

–Julito G. Rada

 

Read More: http://thestandard.com.ph/business/banking-report/239167/weak-peso-to-weaken-consumer-spending.html

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