A unit of Fitch Group on Tuesday trimmed its growth forecast for the Philippines this year to 4 percent from a previous estimate of 6.3 percent, taking into account the huge impact of coronavirus disease 2019 to consumer spending, one of the drivers of economic growth annually.
Fitch Solutions Country Risk and Industry Research said in a report it cut the growth forecast for consumer spending in the Philippines this year to 3.4 percent from its previous estimate of 5.8 percent.
“Our 2020 revision, taking into account the projected impact of COVID-19 on the Philippines, leads us to project that real household spending will grow by just 3.4 percent year-on-year. This is a downward revision on our pre-COVID-19 2020 consumer spending growth outlook of 5.8 percent year on year,” Fitch Solutions said. Real household spending in the country in 2019 grew 5.4 percent.
“In line with our consumer outlook revision, our country risk team has revised down the Philippines’s economic growth outlook. Real GDP is now projected to grow by 4 percent y-o-y, down from our pre-coronavirus forecast for 2020, of a growth of 6.3 percent,” it said.
In 2019, the Philippine economy managed to grow 6 percent despite the delay in the approval of the P3.7-trillion national budget.
The government in the latter part of 2019 set a 6.5-percent to 7.5-percent target range for GDP expansion for 2020. But the onslaught of the pandemic compelled both public and private economists to say that the target will likely be missed, with some even projecting a nearly flat growth this year.
Fitch Solutions said consumer behavior and government measures to stem the flow of the COVID-19 infection were leading to dramatically shifting purchasing patterns.
“We highlight that consumers are placing a greater focus on essential spending categories. For consumers in countries where a lockdown has been initiated, and for consumers who believe that their governments might implement this measure, the spending focus is narrowing further, with a concentration on priority purchases [food and non-alcoholic drink and health spending],” it said.
It said urban consumers, in the Metro Manila region especially, went through mass panic buying after President Duterte declared a State of Emergency on March 8, to the point that the Department of Trade and Industry had to limit the amount of instant noodles, canned food, bread, milk, and mineral water each consumer could buy per seven days.
“While panic buying has subsided, we believe that consumers spending will remain focused on priority purchases [food, drink and health products],” it said.
Bars and pubs are closed, as they are deemed as nonessential services. Although consumers can still purchase these products via food stores, Fitch Solutions believes that spending levels on these products will slow as consumers’ orientate their purchasing focus to priority goods.
Also, non-essential businesses are closed, including clothing and footwear stores. There is also less potential for e-commerce orders, as deliveries are prioritized for food.
“This category is expected to be one of the worst hit, given that data from China in March 2020 has shown that clothing and footwear sales dropped by -46.8 percent year on year, the largest contraction in percentage terms amongst all sales categories,” Fitch Solutions said.