The Philippines’s real household spending this year is seen contracting more than it did during the Great Financial Crisis (GFC) over a decade ago as the Covid-19 pandemic-induced lockdowns dampen consumer behavior.
Fitch Solutions, in a report released Thursday, said household spending in 2020 will shrink by 4 percent, which is higher compared to the 2.9-percent real rate contraction during the 2008-2009 GFC.
The recent forecast—traversing to negative territory the first time this year—is the lowest that the Fitch unit gave to the Philippines so far. In May, it downgraded its outlook to 3.4-percent growth from 5.8 percent earlier as consumers are likely to focus only on the essentials like food and health-related expenses.
The Fitch research arm said the 4- percent contraction was also a steep decline from the estimated growth of 5.5 percent last year. Still, this figure is better than BDO Unibank Inc.’s forecast of 6.5-percent drop this year.
“Driving our negative outlook view for 2020 is the general economic outlook for the Philippines, with real GDP [gross domestic product] projected to contract by -2.0 percent in 2020, from a growth of 5.9 percent in 2019,” the Fitch unit explained.
On Thursday, the Philippine Statistics Authority (PSA), however, reported that household consumption plummeted by 15.5 percent already in the second quarter—after only inching up by 0.2 percent three months earlier—as spending in transport, restaurants and hotels, recreation and culture, clothing, alcoholic beverages and education, among others, decreased as well.
The country’s GDP, meanwhile, dropped by 16.5 percent in the second quarter amid the slowdown in manufacturing, construction and transportation and storage.
Fitch Solutions noted that unemployment was also a primary concern given that it affects the financial outlook for the consumers.
It forecasts unemployment rate, as a percentage of the total labor force, to average at 8 percent in 2020, higher than the estimated 5 percent last year.
PSA said that at least 5 million Filipinos became jobless in April following the lockdown measures in several parts of the country to contain the virus.
Apart from this, the Fitch unit pointed out that there are significant risks seen to the demand, likely affecting the spending habits of the consumers.
For example, it noted that work and social-related spending pattern was already disrupted, noting that cosmetics and hospitality sectors are the most exposed.
“Having been told to limit social contact and in some nations remain indoors during lockdowns, it will take time for consumers to actively seek more crowded settings, such as shopping malls and restaurants,” the research unit added.
Fitch Solutions, meanwhile, is anticipating a recovery for household spending next year or a 6.3-percent expansion. This, as it anticipates a 7.4-percent economic growth for 2021.