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  • Writer's pictureZiggurat Realestatecorp

Domestic demand drop to weigh on GDP growth

Private consumption has continued to fall and will likely lead to a significant economic slowdown this year, a United Kingdom-based research firm said on Monday.

"The deterioration in domestic demand in the Philippines carried over into the start of the second quarter," Pantheon Macroeconomics said in a report.

It noted that net sales volumes contracted anew in April, albeit by a narrower 1.6 percent from 2.8 percent in March, and would likely worsen moving forward.

"So far, the adjusted headline has fallen by 3.7 percent in total from the October peak," Pantheon said. "And, assuming that the current rate of decline persists, sales risk falling back below the pre-Covid level by the end of the third quarter this year."

Support was said to be waning as credit growth had plateaued, remittances were slowing and cracks showing in terms of the labor market situation.

"Indeed, we remain comfortable with our forecast for a two-percentage-point-plus drop in GDP (gross domestic product) growth, to 5.5 percent — the softest print in 12 years, excluding the 2020 recession — and our call for the BSP (Bangko Sentral ng Pilipinas) to start cutting interest rates by 50 bps (basis points) initially, in the fourth quarter," Pantheon said.

The GDP outlook falls below the government's 6.0- to 7.0-percent target for the year. Growth last year was an above-target 7.6 percent.

Pantheon said that credit card use, which drove a surge in household debt, had hit a ceiling and salary-based general consumption loans — "payday" loans — had fallen.

"Credit card debt growth year over year is now plateauing around the 30 percent mark," it pointed out.

Growth in "payday" loans, which accounted for 22 percent of the spike in household debt growth last year, "is now reversing, dragged down by the collapse in short-term trends to near-zero growth."

Remittances growth, meanwhile, was also described as "rapidly unwinding."

"Seasonally adjusted transfer growth on a dollar basis essentially has been flat over the past 18 or so months, fluctuating roughly in the 3.5-to-4.0 percent range," Pantheon noted.

"By contrast, the growth in inflows in peso terms surged to as high 20.6 percent in October last year, but has since moderated to 8.7 percent, as of March, and looks destined for a spell in the red in the second half of this year, and little-to-no growth in 2024."

As for the labor market, Pantheon said that its supposed strength — highlighted by historically low unemployment — was a "mirage."

"But the unemployment rate tends to lag developments in the real economy and, in any case, it's worth reiterating that this headline gauge continues to be flattered by the highest rate of labor force participation in over 10 years," it added.

Quarterly job openings data also show that an increase last year was lackluster compared to economic growth. Average vacancies were 26 percent lower than in 2019 and progress "stalled in the second half of 2022."

"The average number of hours worked is now also falling outright in year-over-year terms, pointing to emerging weakness at the margin," Pantheon said.

"The April numbers showed an 8.0 percent fall, the fourth negative print in a row and the steepest decline since the first lockdowns in 2020."

Source: Manila Times

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