Weak demand may dampen 2021 growth

by Louise Maureen Simeon (The Philippine Star), 12 Aug 2021

MANILA, Philippines — Consumption will remain subdued for the rest of 2021 as mobility curbs affect spending and drag expectations for a strong economic growth for the year, an international think tank said.

In its latest monitor, UK-based Pantheon Macroeconomics said a continued decline in private consumption is seen in the current quarter, although milder.

While the Philippines officially exited recession after registering an 11.8 percent growth in gross domestic product (GDP) in the second quarter, the economy is still far from being out of the woods.

Private consumption, which accounts for about 70 percent of GDP, registered a 2.4 percent decline, effectively erasing gains in the last two quarters.

“We thought that household spending would hold up despite the pressures exerted by the second virus wave and consequent restrictions in the early part of the second quarter,” Pantheon’s senior Asia economist Miguel Chanco said.

The release of much-needed demand has been pushed out following the reimposition of quarantine restrictions in April and May.

The country’s road to economic recovery greatly hinges on improved consumer spending and boosting confidence depends on people being allowed to safely go out.

“At worst, it implies that the release of pent-up consumer demand has run its course, and that the improvement in footfall has more to do with lockdown fatigue than a desire to spend more,” Chanco said.

“We are leaning more toward the latter theory, as it makes greater sense against the backdrop of the multiple non-COVID-19 headwinds still weighing on spending, such as non-existent real wage growth and the rebuilding savings lost in 2020,” he said.

As the bleak outlook for consumption will likely dominate, Pantheon is looking at a four percent GDP growth for 2021.

Such a forecast is way below government targets of six to seven percent.

“The reimposition of the strictest anti-virus measures in the capital this month—which we reckon is likely to be extended after the initial two weeks—will impinge further on spending,” Chanco said.

He added that even the Bangko Sentral ng Pilipinas’ last consumer survey showed that the share of households who intend to splurge on big-ticket items fell to a new low of 3.6 percent.

During the quarter, government spending also went down but Chanco said it has some more room to raise spending.

It was only investments that registered improvement at 12.2 percent but Chanco warned that it is important to not get carried away as the latest hefty pick up is largely due to a function of businesses playing catch-up.

Nonetheless, investments are expected to remain strong for the rest of the year.

“Public and private projects are likely to be front-loaded before political uncertainties crescendo in the run-up to the May 2022 general election. The proverbial light at the end of the COVID-19 tunnel is also starting to be more visible, leaving aside the Delta scare,” Chanco said.

“Some semblance of herd immunity looks well within reach before the middle of next year at the current rate of vaccinations, as the level of protection from prior infection probably stands at around 40 percent,” he said.