PHL consumer demand seen to remain muted

Domestic demand in the Philippines and other emerging Asian economies is expected to remain muted amid a high interest rate environment, S&P Global Ratings said.

“Consumer demand is more subdued in the Philippines with elevated interest rates (with the policy rate at 6.5%) and weak consumer confidence,” S&P said in its Emerging Markets (EM) Monthly Highlights.

The Bangko Sentral ng Pilipinas (BSP) kept its key rate to an over 17-year high of 6.5% since October 2023 to tame inflation.

“Opposing forces are at work as consumer demand remains broadly stable in EM Asia. On the one hand, demand is dampened by tighter monetary policy and spillovers from weaker economic growth last year,” it said.

“On the other hand, resilient labor markets and recovering tourism are supporting consumption activity.”

In the first quarter, the Philippine gross domestic product (GDP) grew by a weaker-than-expected 5.7%.

Household spending, which accounts for about three-fourths of growth, grew by 4.6%. This was its slowest pace since the 4.8% decline in the first quarter of 2021.

“We observe a slowdown in long-term GDP growth across some EMs, mostly because of slower labor productivity and fixed investment,” S&P Global said.

“In an environment of high interest rates, EM Asian economies with higher domestic savings may be better positioned to finance investments and boost long-term growth prospects,” it said.

The Philippines is targeting 6-7% economic growth this year, 6.5-7.5% for 2025 and 6.5-8% for 2026 to 2028.

However, S&P Global said it sees stronger GDP growth in the region this year compared with 2023, although there are risks to this outlook.

“In several economies, policy-related risks have risen following elections that are generating uncertainty over reforms, fiscal trajectories, and institutional frameworks,” it said.

S&P Global expects Philippine GDP growth to average 5.8% this year, falling short of the government’s goal.

“Policy uncertainty could exacerbate existing risks. Policy uncertainty will be a key factor late in the year and into 2025 as US elections play out and new administrations in key EMs begin to execute their plans,” it added.

The US presidential election is scheduled for Nov. 5.

In the Philippines, the midterm elections will be held in May 2025 and will have Filipinos voting for senators and local officials such as congressmen, governors, and mayors, among others.

Meanwhile, the credit rater said it also expects the delay in US Federal Reserve’s easing cycle to also impact monetary loosening in the region.

“A later-than-anticipated start to the Fed’s interest rate cuts will contribute to slower monetary policy normalization in most major EMs, though our view on terminal benchmark interest rates remains unchanged,” it said.

BSP Governor Eli M. Remolona, Jr. has said that the central bank is on track to begin cutting rates by August this year.

The BSP could cut by up to 50 basis points (bps) for the full-year, he added, through 25-bp cuts in the third and fourth quarters.

S&P Global also noted easing food inflation in the region. “Food inflation has been moderating in the past 12 months, but at an uneven pace across EMs.”

In the Philippines, headline inflation slowed to 3.7% in June from 3.9% in May, marking the seventh straight month that inflation settled within the BSP’s 2-4% target band.

Though food inflation in June quickened to 6.5%, rice inflation eased to 22.5% from 23% a month earlier. Rice accounts for nearly half of overall inflation.

“Most economies in the region are highly dependent on food imports, particularly on wheat, rice and corn,” S&P Global said.

“Despite some moderation, prices for several key food commodities, such as wheat and rice, remain around 10-15% above pre-2022 levels. Inflationary pressures stemming from elevated food prices continue to complicate disinflation trajectories for food-importing EMs,” it added.

For the first half of the year, inflation averaged 3.5%, slightly above the central bank’s 3.3% full-year forecast.

Source: Business World

Slowing PHL remittances may weaken consumption

Philippine domestic demand could ease this year as remittance inflows are muted by reduced overseas hiring, Pantheon Macroeconomics said.

“Domestic demand in the Philippines is continuing to struggle, reflecting in large part the oppressive headwinds facing consumers,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Senior Asia Economist Moorthy Krshnan said in a report.

It noted that remittances, which have slowed this year, might fail to boost domestic demand in the coming months.

“Remittances have saved the day in the past, such as in 2022, when they helped to fuel the post-pandemic release of pent-up demand,” according to the report.

Filipino consumers, who have been battling rising prices of commodities such as rice, meat and oil, rely heavily on remittances sent home by relatives abroad.

“We see no prospect of this savior making a comeback in 2024, if the first two months of the year are anything to go by,” Pantheon said.

Cash remittances in February rose by 3% to $2.65 billion from a year earlier. It fell by 6.7% month on month.

“The year-over-year increase — in local-currency terms — would fall back into the red in the middle of this year if this rate of growth persists,” it said.

Pantheon also noted that overseas placements, which slowed to 28% year on year in January and have dropped since early 2021, could also affect remittance flows.

Borrowing remains a driver of household spending, as consumer credit remained above average since late 2022, Pantheon said. It jumped to 25.2% in February, as credit card and motor vehicle loans rose by 30.1% and 19.1%, respectively.

Pantheon said rampant borrowing is “fundamentally unsustainable and likely to result in a more painful payback for the economy down the line.” A “climbdown” in consumer credit is likely to take place this year, it added.

Based on Pantheon’s computations, the share of Philippine households with savings recovered “only modestly” to 31.9% in the first quarter from 30.1% a quarter earlier.

“Meanwhile, the proportion of those who could set aside any savings has seen lower lows and lower highs in the past two surveys,” it added.

Philippine unemployment dropped to a two-month low of 3.5% in February, which is expected to offset still-rampant borrowing and lower remittances. But Pantheon said the downtrend in job openings is a risk.

Pantheon said Philippine gross domestic product (GDP) growth in the first quarter was likely one of the fastest in the region at 5.8%, behind Taiwan (6.1%) and ahead of Indonesia (5%) and Singapore (2.7%).

The Philippines would outpace its peers in the second quarter with 6.2% GDP growth, over Indonesia (4.4%), Taiwan (3.6%) and Singapore (2.6%), it added.

The Philippine Statistics Authority will release first-quarter GDP data on May 9.

Inflation could quicken to 3.8% in June before cooling to 2.7% in September, but could speed up to 3.1% in December, Pantheon said.

Source: Business World

Real estate’s return to pre-pandemic levels seen

Surging demand across various sectors is expected to drive the Philippine real estate sector’s return to pre-pandemic levels, industry experts said.

“The country’s real estate sector will continue to grow next year. We’re actually going back to pre-pandemic levels in 2024,” McKinsey & Company Philippines Managing Partner Jon Canto said.

“Philippine real estate has been resilient but sustained demand and investments will take it to the next level,” he added.

Mr. Canto said that optimism for the real estate sector is driven by increased foreign tourists, surging investment pledges, higher property prices, and sustained demand in the office and retail segments. 

 “We are optimistic about real estate. It is one of the sectors that is going to rebound fully next year. It has been resilient in the wake of COVID-19, inflation, and rising construction costs,” Mr. Canto said. 

 Noli D. Hernandez, Megaworld Corp. executive vice-president for sales and marketing, said the Philippine real estate sector has been doing well despite rising inflation. 

 “Overall, despite the surging inflation, I would like to say to you that the Philippine real estate sector has been doing very well,” Mr. Hernandez said. 

The country’s inflation rate decelerated to 4.9% in October from 6.1% in September amid the slower increase in food prices.

“For our office and hotel businesses, we have also seen a surge of investor confidence and as far as retention levels of tenants are concerned, these have been steady and even increasing,” Mr. Hernandez said.

 “Similarly, we’re seeing a very huge demand coming from the MICE (meetings, incentives, conferences and exhibitions) industry. We have been seeing not just an increase in occupancy rates but also an increase in room rates,” he added. 

According to Mr. Hernandez, the risk posed by inflation to the real estate sector’s recovery could also become an opportunity.

 “While inflation poses a threat, it also can serve as a boon to the industry because we know that real estate investment still remains to be a very good hedge against inflation. On one hand, there is the threat posed by inflation as a deterrent to the impulse to invest but on the other hand, it can be the same impulse that will generate more interest in the industry,” Mr. Hernandez said. 

 Meanwhile, Federal Land, Inc. President William Thomas F. Mirasol said the company is seeing increased consumer confidence and “favorable opportunities in the high income and luxury market segments.” 

“Higher interest rates naturally bring down demand. But as the economy is growing, we see more consumers that are more confident in the future. They’re saying that the interest rate is higher than it used to be, but it is not that scary,” Mr. Mirasol said.

 Mr. Mirasol also called for better infrastructure such as roads in order to bring down property prices.

“No developer wants to raise its costs more than absolutely necessary. Developers also want to reach a broader market. If the nation had better infrastructure, like if you live in Cavite and you work in Metro Manila and it was only a 20-minute drive, then we would see lower property prices,” Mr. Mirasol said.

“The key to making sure that prices don’t rise unreasonably is going to be infrastructure. One of the biggest cost drivers for real estate is the cost of land, and while land remains isolated, it is very difficult for people to move around from one place to another. That’s why you see pockets of development that tend to rise at a much faster rate than any other area,” he added. 

Source: Business World