Household spending seen to pick up this year

Household spending in the Philippines may expand by 5.5 percent this year as consumer confidence continues to pick up from its all-time low during the height of the COVID-19 pandemic, according to Fitch Group’s research unit BMI.

However, this year’s growth projection in household spending is much slower than the 8.7-percent expansion recorded in 2022 as inflation is expected to remain elevated.

BMI, formerly Fitch Solutions Country Risk & Industry Research, said nominal income growth is still forecast to outpace inflation, which ensures real income growth for consumers, giving greater propensity for spending.

“However, inflation is likely to remain elevated, and we expect the central bank to tighten monetary policy further in an attempt to maintain control,” it said.

The Bangko Sentral ng Pilipinas (BSP) has raised key policy rates by 425 basis points since May last year to tame inflation and stabilize the peso. This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent.

BMI said Philippine inflation may further accelerate to 6.5 percent this year after quickening to 5.8 percent last year, exceeding the BSP’s two to four percent target range, from 3.9 percent in 2021.

It added that inflation is likely to remain elevated relative to the BSP’s target range of two to four percent, prompting the central bank to tighten monetary policy further to anchor inflation expectations.

“We forecast inflation will continue to worsen over 2023 (from 5.8 percent in 2022, to 6.5 percent over the year) and that this will continue to negatively impact the prospects for Filipino consumers,” BMI said.

“The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power,” it said.

The unit of Fitch Solutions expects the Philippines’ gross domestic product (GDP) growth to slow sharply to 5.9 percent this year after picking up to 7.6 percent last year from 5.7 percent in 2021.

“The slowdown in growth is in line with expectations, but the pace of deceleration was more modest than predicted. Elevated energy prices and tightening monetary policy will result in further deceleration during the forecast period,” BMI said.

BMI’s forecast is slightly lower than the six to seven percent GDP growth target set by economic managers via the Development Budget Coordination Committee (DBCC).

According to BMI, the peso may depreciate further to 56.50 to $1 this year.

“For the Philippines, which remains heavily reliant on imports to meet local demand, this will provide further headwinds as imports will become costlier,” it said.

It added that the weakening of the peso would also reduce the amounts sent back by overseas Filipino workers (OFWs) in local currency.

The research arm sees unemployment averaging 6.3 percent this year from 4.8 percent in February.

“While inflation is eroding real gains in incomes, the strong labor market has been a major driver behind the growth in consumer spending, seen over 2022. However, with many economies now expected to slow or enter recession in 2023, we highlight increasing levels of unemployment as a risk to our consumer outlook in the short term,” BMI said.

Source: Philstar

Food, education, medicine still top expenses of OFWs

Food, education and medical budgets were still among the top expenses made by Overseas Filipino Workers (OFWs) and their families, according to the latest data from the Bangko Sentral ng Pilipinas (BSP).

The BSP said food accounted for 96.2 percent of total expenses, the highest since the second quarter of 2022 while medical expenses reached 57.2 percent, the highest in the past five years.

Education expenses, meanwhile, slowed to 67.3 percent in the first three months of 2023 from 68.5 percent in the last quarter of 2022.

“OFW remittances are still mainly used for food and other household needs, education, and medical expenses in the first quarter of 2023,” BSP said.

The data also showed OFW remittances were also allocated to purchase houses and vehicles as well as make investments. More OFW households also saved in the first quarter of 2023.

Based on the data, 12.9 percent of OFW households used the remittances to purchase houses—the highest since the first quarter of 2020 when it reached 13.6 percent.

OFW remittances were allocated by 8.4 percent of households to make investments while 5.6 percent purchased cars and other motor vehicles in the first quarter of 2023.

Some 43 percent or almost half of OFW households were able to use remittances to save in the first quarter of 2023. This was the highest since the first quarter of 2020 when it was at 44.7 percent.

“In terms of the utilization pattern of remittances by area, a larger percentage of OFW households in the NCR [National Capital Region] allotted part of their remittances to savings, purchase of consumer durables, and investments as opposed to their counterparts in AONCR [Areas Outside NCR],” BSP said.

In the first quarter of 2023, BSP data showed 97.5 percent of households that received remittances had OFW members. In NCR, this was only at 96.5 percent while in AONCR, this was higher at 98.3 percent.

In the first quarter of the 2023 CES, BSP said 5,467 households were surveyed. A total of 2,729 households or 49.9 percent were from the NCR and 2,738 or 50.1 percent percent were from AONCR.

The middle-income group of households or those earning P10,000 to P29,999 a month comprised the largest percentage of respondents at 39.8 percent.

This was followed by the high-income group which earned P30,000 and over and comprised 34.5 percent of respondents; and the low-income group, earning less than P10,000 a month, accounting for 25.7 percent of respondents.

Source: Business Mirror

Health Spending Registered 18.5 Percent Growth

The country’s health spending or Current Health Expenditure (CHE) reached PhP 1.09 trillion in 2021, 18.5 percent higher compared with PhP 917.15 billion posted in 2020.

This increment was faster than the 12.8 percent growth registered in the previous year. Meanwhile, Gross Health Capital Formation Expenditure (HK) amounted to PhP 71.15 billion in 2021, lower by -19.6 percent compared with PhP 88.54 billion reported in 2020.

The Total Health Expenditure (THE), which comprised of CHE (93.9%) and HK (6.1%), recorded PhP 1.16 trillion in 2021. It grew by 15.2 percent from PhP 1.01 trillion expenditure in 2020. The share of THE to the Gross Domestic Product (GDP) at current prices was 6.0 percent in 2021.

Government schemes and compulsory contributory health care financing schemes had the highest share in health spending in 2021

Health spending financed through government schemes and compulsory contributory health care financing schemes was the largest among sources of health financing in the country in 2021.

It amounted to PhP 546.64 billion or 50.3 percent of CHE. Household-out-of-pocket payment (OOP) came second at PhP 451.00 billion (41.5%), followed by voluntary health care payment schemes which contributed PhP 89.35 billion (8.2%). (Figure 2)

Among health care providers, hospitals received the bulk of CHE amounting to PhP 453.23 billion or 41.7 percent share. It was followed by retailers and other providers of medical goods (26.2%) and providers of health care system administration and financing (14.8%).

In terms of income quintiles, health spending of the fifth quintile (top quintile) was the highest at PhP 379.76 billion or 34.9 percent share. The poorest quintile recorded PhP 190.43 billion health spending or 17.5 percent share.

On a per capita basis, using the 2015 census-based population projections, health spending was at PhP 9,839.23 in 2021, higher by 17.0 percent compared with the PhP 8,411.52 recorded in 2020.

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Source: PSA