Household spending seen slowing

Household spending is expected to slow down this year, partly due to the fluctuating unemployment rate, according to marketing data and analytics company Kantar.

The 2024 fast-moving consumer goods (FMCG) spending growth is forecasted at 0.4 percent, slower than the 6 percent growth posted last year.

This is based on the Outlook 2024 report from Kantar's Worldpanel Division, which analyzed the FMCG purchases of 5,000 households between January and December 2023.

Kantar said that it "expects Filipinos to remain positively cautious in 2024 even as macro-economic indicators such as inflation and gross domestic product (GDP) numbers improve.

Kantar Shopper Insights Director at the Worldpanel Division Laurice Obana said on Thursday that the spending rate is really "a push and pull" of good things and not so good things that are happening in the country.

The report said some categories that were previously deprioritized, such as healthy foods and personal and home care products, also continue to experience recovery.

"More shoppers chose healthier food options such as soy milk, yogurt, cereals and oatmeal in 2023 compared to the year before. They also purchased more self-care items like hair styling/treatments, facial wash and nail polish for home use," said Obana.

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Paper towels and other fabric cleaning products also saw an increase in spending.

Households in the National Capital Region posted the highest growth in FMCG purchases at 21 percent; Visayas and Mindanao with a 13 percent rise; and the rest of Luzon with 12 percent.

Obana said that five trends are still significant in the Philippines for this year, and businesses can utilize them to reach their growth targets.

These include the pursuit of value in purchases, the adoption of omni-channel shopping experiences, an increase in out-of-home purchases, a holistic approach to health-conscious shopping, and a growing expenditure on pet-related products.

Kantar expects a rise in pet food purchases which evolved as a priority for pet owners. About 66 percent of Filipinos buy pet food, and spending on pet care jumped 44 percent last year. 

The trend of purchasing snacks and non-alcoholic beverages for on-the-go consumption continues to rise.

"Filipino shoppers will continue to look for value in every purchase, and they are not limited to affordable brands or smaller packs," said Kantar.

It also emphasized that staying healthy remains valuable for Filipino families. Nearly all households or 99 percent consider being healthy as significant or very significant, yet only 72 percent manage to consistently purchase healthy groceries.

"At the end of the day, Filipinos need to find the value in what they are buying. Sometimes, this may mean something more than just currency," she said.

Source: Manila Times

WEF ‘very bullish’ on PHL economy

The Philippines can potentially become a $2-trillion (around P112-trillion) economy in the coming decade if it continues policy reforms and boost investments in key sectors, the head of the World Economic Forum (WEF) said.

“We are very bullish on the Philippines, provided that reforms do continue. I think that this can be in the coming decade, a $2-trillion economy if there are better investments in education, infrastructure and also able to draw on the great competence of the people of the Philippines,” WEF President Børge Brende said at a press briefing at the Palace on Tuesday.

Data from the Philippine Statistics Authority showed that the country’s gross domestic product (GDP) was valued at P21.05 trillion (roughly $380 billion) in 2023.

Last year, the economy grew by a weaker-than-expected 5.6%, missing the government’s 6-7% goal.

Economic managers are targeting 6.5-7.5% growth this year, although they have recently signaled a need to temper the outlook amid a weaker-than-expected global economy.

“The economy here has really shown how resilient it is. We are seeing a lot of global business interest in the Philippines. It’s now the fastest-growing economy in the region. It’s not always been like that,” Mr. Brende said.

He noted there has been an increase in foreign investor interest in the Philippines, although the current level of foreign direct investments (FDIs) is “relatively lower” compared with neighboring countries.

In 2023, FDI net inflows dropped by 6.6% year on year to $8.9 billion. The central bank expects FDI net inflows to reach $9 billion this year.

To support economic growth and attract more investments, Mr. Brende said the Philippines needs to address red tape and bureaucratic bottlenecks, upskill and reskill workers, make further investments in infrastructure, and create a conducive environment for entrepreneurs and startups.

“Of course, there are also some geopolitical challenges that the region is faced with, but it’s also an opportunity for the Philippines to get increased investment, especially in the manufacturing area, because there is diversification of the supply chains,” he added.

Mr. Brende also highlighted opportunities in renewable energy (RE).

“There is quite a potential for renewables in this country… Renewables make you more energy independent, because the renewables will be produced in the Philippines so you don’t have to import from other countries. It makes you stronger as a nation,” he added.

The Philippines last year opened the renewable energy sector to full foreign ownership, paving the way for foreign nationals and foreign-owned entities to explore, develop and use RE resources in the country such as solar, wind, biomass, ocean or tidal energy

The government is targeting to increase the share of renewable energy in the country’s power mix to 35% by 2030 and 50% by 2040.

Mr. Brende also highlighted the potential of the Philippines’ young population.

“The youth is critical. There are also opportunities when it comes to the knowledge-based economy, because that’s a big change. Productivity can be increased by 30% in the coming decade,” Mr. Brende  said.

“If you want to see continued economic growth, you also have to be part of the intelligence economy.”

Source: Business World

‘Temperature shock’ poses persistent inflation risk

Rising temperatures and climate shocks such as the El Niño weather event could fan inflationary pressures and reduce economic output growth over the next few years, according to a study by economists at the Bangko Sentral ng Pilipinas (BSP).

In a discussion paper titled “Macroeconomic effects of temperature shocks in the Philippines: Evidence from impulse responses by local projections,” BSP economists said the inflationary effect of temperature shocks was “significantly” persistent up to the fourth year after a shock.

“A 1-degree Celsius increase in annual mean temperature leads to persistent inflationary pressures up to four years, with a cumulative increase of 0.77 percentage point (ppt) in headline inflation after the initial shock,” they said.

The paper, authored by BSP Monetary Policy Research Group economists Jean Christine A. Armas, Ranelle Jasmin L. Asi, Dyan Rose L. Mandap, and Gabrielle Roanne L. Moral, also showed that the effect of temperature shocks could increase headline inflation by 0.46 ppt in the short term and up to 0.81 ppt in the long term.

The study also showed that El Niño Southern Oscillation (ENSO) events also stoke inflation.

“Short-term inflationary effects of temperature shocks on headline, food, and non-food are deeper in magnitude at 0.49 ppt, 0.69 ppt, and 0.49 ppt, respectively, when we incorporated dummy variables for episodes of ENSO events,” the BSP economists said.

The Philippines is currently in the midst of an El Niño weather event, which has caused dry spells that disrupted agricultural output and fueled food inflation. El Niño is expected to persist through the second quarter.

Headline inflation accelerated for the first time in five months to 3.4% in February as prices of food continued to rise. Rice inflation, which accounts for almost half of the headline print, surged to 23.7% in February — the fastest since the 24.6% in February 2009.

The BSP earlier said that inflation could temporarily accelerate above the 2-4% target range in the second quarter due to the “adverse impact of El Niño weather conditions on agricultural production and positive base effects.” The BSP expects inflation to average 3.6% this year.

In the study, BSP economists noted that temperature shocks more heavily impact the prices of food over non-food.

“Disaggregating the components of consumer prices, the results show that the inflationary impact of temperature shocks on food prices is deeper in magnitude and long-lasting in period at 0.79 ppt vis-a-vis the effect on non-food prices, which is rather small at 0.31 ppt and transitory up to 2 years only,” they said.

The BSP study also showed that inflationary effects from temperature shocks are more prevalent in Luzon.

“In the case of Luzon, where most of the regions are predominantly agricultural and have various industries including food processing and machinery production, temperature shocks affect the level of output in key production sectors, resulting in deeper magnitude of the inflationary effect,” they said.

Temperature shocks can also reduce economic growth.

“We find that, on the average, the short-run marginal impact of a 1-degree Celsius increase in the country’s annual mean temperature reduces aggregate output growth by 0.37 ppt,” the BSP economists said.

“The decline in output growth is larger at 0.47 ppt when we control for episodes of ENSO events vis-à-vis the 0.3 ppt drop in output growth after controlling for the occurrence of floods and storms.”

The study also showed that manufacturing and services sectors are “negatively affected” by an increase in mean temperature.

“However, we find that temperature shocks do not significantly affect labor productivity in heat-exposed industries such as construction, transportation, and manufacturing,” it added.

The study said that central banks will play a crucial role in managing the impact of climate change on price stability.

“On the one hand, the inflationary effects of temperature shocks in the short run are best addressed by the timely implementation of non-monetary policy interventions since monetary policy adjustment typically works with a lag,” they said.

“On the other hand, if inflation remains persistent and evidence of second-round effects materialized, the central bank will respond and adjust its policy interest rates accordingly.”

Macroeconomic Effects

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Source: Business World