Philippines’ tepid demand reflects broader Asia Pacific struggle

by Ian Nicolas Cigaral (Philstar.com), 4 Feb 2021

MANILA, Philippines — The Philippines is not alone in grappling with anemic consumer demand, with the rest of Asia Pacific region trying to perk up consumption appetite hammered down by the coronavirus pandemic.

While it is managing the health crisis well, Asia is so far experiencing a slow rebound in consumption, prompting the region to import less and export more to Western nations where demand is already regaining lost ground, debt watcher S&P Global Ratings said in a report released Thursday.

“Cautious” Asian consumers “tightening their belts” and beefing up their savings amid hard times are to blame for the demand slack, S&P said.

“The popular narrative is Asia is leading the recovery and digging the world out of a big hole. This is not quite right. Demand from the rest of the world is helping Asia out of the hole,” S&P said.

“Asia is saving more and investing less, relative to the rest of the world during the recovery,” it added.

Such is the case in the Philippines. As the country remained mired in recession, household spending, a traditional growth driver, contracted 7.9% year-on-year in 2020. That tepid demand shrank imports to 21.9% last year while some signs of uptick in demand overseas helped exports post a smaller 16.7% slump.

S&P identified two factors causing the spending hesitation among Asian consumers. One, Asian governments have been slower in rolling out coronavirus vaccines compared with their Western counterparts, which in turn would delay “normalization” of economies in the region. Two, global travel is likely to remain depressed, a phenomenon most stark in China.

But S&P said Asia’s over-reliance on improving demand outside the region “is not healthy”, warning that such dependence could eventually spark trade tensions with the West which might see the resulting trade imbalances disadvantageous and hint of tough measures to correct them. The good news is that there is less chance of that materializing, with some demand due for a pick-up later this year.

“Until Asia starts pulling its weight in the demand recovery, global growth will fail to live up to its potential… Concerns about external imbalances and currency undervaluation may broaden, reigniting the debate about currency wars,” S&P said.

“There are good domestic and international reasons for Asia to find a solution to its domestic demand problem,” it added.