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Fitch Solutions: Household spending to fall 8% this year

Household spending in the Philippines is expected to fall 8 percent this year amid the health crisis, before rebounding by 5.6 percent next year on the back of government stimulus measures, Fitch Solutions, a unit of Fitch Group, said in a report Friday.

“We forecast household spending in the Philippines to return to growth in 2021, after the COVID-19 pandemic led to a contraction in consumer spending in 2020. In the Philippines, an improving economy in 2021 will feed through to better employment figures, supporting household disposable incomes, along with ongoing government stimulus measures,” it said.

“As such, we project household spending in the country to grow by a real rate of 5.7 percent year-on-year over 2021, a significant improvement from the 8-percent y-o-y contraction in 2020,” it said.

Fitch Solutions said all consumer spending categories would likely return to positive growth in 2021. It said that as food and non-alcoholic drink spending were prioritized in household budgets in 2020, the growth in spending on these items, while remaining positive, would be slightly lower in 2021.

Food and non-alcoholic drinks spending is seen to rise by 5.3 percent year-on-year in 2021, from the 9.3 percent y-o-y growth it projected for 2020.

Spending within other consumer categories are estimated to record significant contractions over 2020, as households cut spending on non-essential items. These categories would likely grow from a relatively lower base over 2021 and thus would report stronger growth over the year, it said.

“The dynamics behind our improving forecast outlook for consumer spending in the Philippines in 2021 are in line with our Country Risk team’s forecasts that the Filipino economy will grow by a real rate of 6.2 percent y-o-y over 2021, a significant recovery on the -9.1 contraction over 2020,” it said.

Fitch Solutions said the rebounding economy would help reduce the unemployment rate in the country, which is expected to rise to 16 percent of the labor force at the end of 2020 as a result of the economic impact of the health crisis.

It said that by the end of 2021, the unemployment rate would decline to 9 percent of the labor force, supporting household incomes over the year.

“However, this is still double the 4.5-percent unemployment rate we estimate for the pre-COVID-19 environment in 2019, suggesting that household spending will still face elevated pressure from higher than normal rates of unemployment,” it said.

Fitch Solutions said the recovery in consumer spending in the Philippines in 2021 WOULD also be supported by the government stimulus measure enacted in 2020.

The government committed P595.6 billion—equivalent to 3.1 percent of 2019 gross domestic product—in fiscal packages towards vulnerable individuals and groups, which include cash support programs for low-income households, tax deductions and wage subsidies.

The economy contracted by 9 percent in the first half amid the pandemic. Economic managers now expect a 6-percent GDP contraction for the full year, deeper than their earlier estimate of a 5.5-percent decline.

Topics: Fitch Solutions , COVID-19 , Fitch Group , Economy
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