Consumers less gloomy; business sentiment rises

Consumer sentiment remained negative, but less so, while business optimism improved in the fourth quarter, the Bangko Sentral ng Pilipinas (BSP) said on Friday.

Results of the central bank's latest consumer and business expectations survey placed the consumer confidence index (CI) at -11.1 percent for October-December, improving from -15.6 percent three months earlier.

The CI for businesses, meanwhile, rose to 44.5 percent from 32.9 percent in July-September.

Consumer sentiment for the quarter and year ahead also improved, to 4.2 percent and 12.4 percent, respectively, from 0.7 percent and 9.9 percent in the earlier survey.

Business confidence, however, fell for the first quarter of 2025 and the full year, to 40.3 percent and 56.4 percent from the quarter- and year-ahead 56.8 percent and 58.0 percent in the third-quarter poll.

A positive CI means that optimists outnumber pessimists. The reverse applies with regard to negative results.

Factors cited

The less pessimistic consumer confidence for the fourth quarter was said to have stemmed from expectations of higher and additional sources of income, more working family members and more available jobs and permanent employment.

Business sentiment, meanwhile, was boosted by expectations of higher demand for certain goods and services, and a seasonal uptick in business activities.

For the next quarter and the next 12 months, consumers said they expected higher income, additional sources of income and more available jobs.

A post-holiday decline in demand, stiff competition here and abroad, increased uncertainty leading to the May 2025 midterm elections, a weaker peso and higher production costs were tagged as having pulled down quarter-ahead business confidence.

For the next 12 months, the lower business sentiment was said to be due to concerns over weaker demand, the impact of escalating geopolitical tensions, domestic and foreign competition, and inflation rising anew.

Consumer findings

With regard to the country's economic condition and family financial situation and family income, consumers were also less pessimistic in the fourth quarter: -24.2 percent from -30.7 percent, -9.0 percent from -11.12 percent and -0.1 percent from -4.7 percent.

Results for next quarter also improved to -3.1 percent from -5.8 percent for the country's economic condition, 5.4 percent from 1.8 percent for family financial situation and 10.3 percent from 6.1 percent for family income.

Consumers turned optimistic for the next 12 months and the outlooks all rose for the country's economic outlook (6.9 percent from 2.9 percent), family financial situation (14.4 percent from 11.6 percent) and family income (16.0 percent from 15.3 percent).

Confidence in purchasing big-ticket items remained firmly negative, but improved slightly with the confidence index for such items hitting -67.3 percent from -68.9 percent three months earlier.

The percentage of households with savings, however, declined to 25.6 percent from 29.0 percent, and the proportion of households with loans was unchanged at 25.5 percent.

Industry outlooks

As for businesses, fourth-quarter sentiment was less upbeat in the construction sector (35.6 percent from 37. 6 percent), but more positive in services (52.9 percent from 36.7 percent), wholesale and retail (42.5 percent from 32.3 percent) and industry (34.5 percent from 26.0 percent).

Firms said they expected easier cash flow and credit access in the last three months of 2024, with the financial condition index improving and the credit access index returning to positive territory.

Businesses also said the peso would strengthen and that borrowing rates would rise in the next quarter and over the next 12 months.

Inflation expectations for 2025 appear to be easing, the BSP said, as fewer businesses predicted rising inflation compared to the previous survey.

Consumer price growth was projected to average 3.6 percent in the fourth quarter and 3.7 percent in the first three months of 2025 and the year ahead.

Consumers, meanwhile, expect higher interest rates, a weaker peso and higher unemployment in the coming months.

They said that inflation would average 6.2 percent in the next 12 months, higher than the business outlook and above the BSP target.

The central bank said that like businesses, fewer consumers said that prices would rise compared to the previous quarter.

Source: Manila Times

Businesses, consumers more bullish for Q4

Businesses and consumers are more optimistic for the fourth quarter, according to the latest surveys conducted by the Bangko Sentral ng Pilipinas (BSP).

Redentor Paolo Alegre Jr., officer-in-charge of the BSP Department of Economic Statistics, said in an online press briefing that the overall business confidence index (CI) for the fourth quarter increased to 56.8 percent from the previous quarter’s 43.7 percent.

“The current-quarter CI has considerably improved since the peak of the COVID-19 effects in the third quarter of 2020, when it registered at -5.3 percent,” Alegre said. 

“However, it has not yet reached its pre-pandemic average level of 41.6 percent and has just been hovering above 30 percent since then,” he said.

Based on the 2024 third quarter Business Expectations Survey (BES), Alegre said the respondents attributed their increased optimism to expectations of higher demand for products and services during the holidays, lower interest rates, easing inflation and better economic conditions. 

For the current quarter, business sentiment remained optimistic as the index inched up to 32.9 percent from 32.1 percent previously. 

He said the decrease in the percentage of pessimists was driven by lower inflation, seasonal uptick in business activities due to the start of the new school term and the pre-holiday inventory stocking by retailers, as well as the expansion of business operations.

For the next 12 months, Alegre said businesses were more upbeat as the confidence index rose to 58 percent from the previous quarter’s 56.5 percent.

The more optimistic outlook for the next 12 months was attributed to expectations of sustained strong demand for products and services, business expansions, lower inflation as well as the launch of new and improved products and services.

Likewise, Alegre reported that Filipino consumers turned optimistic for the fourth quarter as the confidence index stood at 0.7 percent, a turnaround from the -0.4 percent in the previous survey. 

“The respondents attributed their optimism to expectations of higher income, additional sources of income, more available jobs, increase in salary and additional working family members,” he said. 

Consumer sentiment also improved for the current quarter as the confidence index (CI) turned less negative at -15.6 percent from -20.5 percent previously, results of the 2024 third quarter Consumer Expectations Survey (CES) showed.

According to the respondents, their less pessimistic sentiment for the third quarter was due to expectations of higher income and remittances, additional sources of income, permanent employment and more available jobs as well as additional working family members.

Meanwhile, the consumer confidence for the next 12 months was less optimistic as the CI declined to 9.9 percent from 13.5 percent, Alegre said. 

“Respondents attributed their guarded optimism for the next 12 months to the faster increase in the prices of goods and services, fewer available jobs, lower income and perceived pervasiveness of corruption in the government,” he said. 

A total of 1,525 businesses participated in the BES, which was conducted from July 5 to Aug 27. Meanwhile, around 5,335 households were interviewed for the CES from July 1 to 12. 

consumer expectations q4.

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Source: Philstar and BSP

Private consumption growth has slowed to its lowest rate since 2010

Private consumption growth in the Philippines has slowed to its lowest rate since 2010 outside the pandemic period. The main culprit is worsening confidence, which has been hit particularly hard by persistent inflation. Although inflation should subside later in the year, the impact on consumer sentiment will take time to feed through, so we don't expect a substantial boost in spending this year.

◼ Consumer confidence has been worsening since mid-2022, particularly in the outlook component. Even though confidence in the current quarter has held up expectations about the future affect the present, as consumers tighten their wallets in anticipation of worsening economic conditions.

◼ Surveys show the uncertainty stems from concerns about future inflation. The nature of recent food-driven inflation also has implications for confidence, as households tend to feel the price impact from nondiscretionary daily items more acutely.

◼ We expect inflation to moderate after the summer given favorable base effects. However, disinflation is unlikely to boost spending substantially, and any uplift will take time due to the lagged nature of inflation expectations formation.

◼ Inflation expectations are also downwardly rigid and could stay elevated for longer because households care most about price levels, rather than annual growth rates.

Private consumption in the Philippines has been slowing since the start of 2022. Arguably, some of the slowdown is due to waning base effects after the pandemic, but Q1 growth of 4.6% y/y is below the pre-pandemic trend. Meanwhile, we have seen few signs of a worsening labor market or lending data. We therefore think the slowdown in consumption growth has been largely due to people's perception of risks and the associated changes in behaviors.

Consumers are turning more uncertain about the future

In its quarterly confidence survey, the central bank asks respondents about their confidence in the current quarter, the next quarter, and four quarters ahead. Results show that compared to the 2022 average, Philippine consumers are turning more pessimistic about the future, while their assessment of the current quarter has been largely unchanged (Chart 1).

This pattern of worsening confidence further into the future is common across different income brackets, which implies the drop in confidence is a broader macroeconomic issue, rather than one pertaining to a specific group.

Economic conditions are deteriorating, but families' financial and income perceptions are holding up

The same survey asks its respondents about their outlook on different metrics of the economy, which can help us interpret where the fall in confidence is coming from. Examining these responses in detail reveals the deterioration in confidence is led by the pessimism around economic conditions (Chart 2).

Despite a bleaker outlook, two other metrics – family financial situation and family income – have been holding up well.

Indeed, consumer lending growth has been strong and settled at 25.3% y/y in April, compared to 19.3% average in 2015-2019. A different survey on bank loan officers suggests credit standards are neutral, and the capital adequacy ratio is healthy at 17% as of Q3 2023 – higher than both the threshold set by the central bank and the pre-pandemic trend.

On income, labor market data don't suggest any weakening. Although the rise in part-time and self-employed workers suggests their earnings situation hasn't improved as much as headline employment numbers indicate, the number of full-time employees has increased, and the unemployment rate has edged down since 2022. Moreover, in the latest round of the confidence survey, more respondents expect the number of unemployed to decrease than increase over the coming year.

Inflation remains a key concern

Concerns over economic conditions stem from high inflation rather than expectations of slowing growth, in our view. Although we don't have data on consumer expectations for growth, consensus forecasts give us some ideas. The latest growth consensus for the whole year is 5.7% – the same rate of growth as in Q1.

This suggests steady growth rather than a slowdown for the rest of the year. The outlook for private consumption implies a pickup in growth. If the consensus forecast is any guide, consumers do not appear to be overly concerned about the growth outlook.

We therefore believe inflation is at the top of households' concerns. After rising for much of 2022, inflation remained sticky throughout 2023 and jumped higher at the start of 2024. Although there are some technical factors at play such as base effects, the recurring bursts of inflation are likely raising household caution, which is showing up in inflation expectations data (Chart 3).

Households are expecting the inflation rate to keep rising from here, which is likely adding to the pessimism as higher inflation erodes real purchasing power. A different question from the same survey suggests the share of households expecting to save is on an upward trend. Moreover, recent inflation has been driven mainly by food prices, which has important implications for inflation expectations as households tend to feel the price impact from daily items such as food more acutely. (Chart 4).

So an inflationary shock has a disproportionate effect on consumer's price perceptions, which in turn affects their spending behavior. At the same time as saving, households cut back on discretionary spending while allocating more money towards food. Already, Philippine households are expecting to spend more on food and less on other items such as recreation and hotel and restaurants (Chart 5).

Inflation expectations will likely stay higher for longer

We expect inflation to come down later this year amid favorable base effects. In particular, we expect food inflation to end the year at 3.4%, the lowest level since Q1 2022 on a quarterly basis. But the lagged impact of inflation expectations suggests they may take longer to come down even after actual inflation slows (Chart 6).

Inflation expectations are also downwardly rigid. This is partly because households pay more attention to the level of prices, not growth. Indeed, although we expect a moderation in the inflation rate, we estimate the price level at the end of 2024 will be 22% higher than the 2020 level. For food, it's even higher at 26%.

On top of this, recurrent supply shocks over the past few years might have made households more cautious. If so, they might be reluctant to change their behavior and remain frugal long after prices have stabilized. This could result in an even greater lag this time, with inflation expectations weighing on spending for longer.

All in all, despite our expectation of sustained disinflation, we don't expect it will result in a quick rebound in consumer spending. Any meaningful recovery is likely to be delayed until next year, and this year's growth will likely remain soft amid subdued domestic demand and tepid global growth.

Source: Oxford Economics