CONSUMPTION in the country is seen to continuously outperform its regional counterparts for this year and the next, but the upward trajectory of local prices is seen to pose a threat to this sector, an international think tank said.
In its latest industry trend analysis on the Philippines, Fitch Solutions—the research arm of Fitch Group—said the consumer outlook for the Philippines remains “bright” on the back of a strong economic growth trajectory, high levels of remittance inflows and falling unemployment levels.
“The Philippine consumer will continue to outperform over 2018 and into 2019, driven by an ongoing boom in the services sector and one of the fastest-growing economies in South East Asia,” Fitch Solutions said.
“Our favorable outlook for the Philippine consumer is further underpinned by an improving labor market…. We forecast unemployment to come in at 7 percent for 2018, remaining stable from 2017, and [falling] lower to 6.9 percent in 2019,” it added.
Consumption is one of the key pillars of the Philippine economy.
Despite the rosy outlook, the international think tank warned about the effect of rising inflation on Philippine consumers, saying the price pressure is a risk to consumption as inflation keeps rising due to higher excise taxes and global oil prices, as well as sustained high credit growth.
“Inflationary pressure does present a downside risk over 2018 and beyond, driven by an upward revision in our forecast for the oil price, which will drive inflation higher,” Fitch Solutions said.
In their latest monetary policy briefing, the Bangko Sentral ng Pilipinas (BSP) said inflation is expected to hit 4.9 percent, from the previous meeting’s projection of 4.5 percent.
In the first seven months of the year, inflation has already averaged at 4.3 percent, with the latest print at 5.7 percent in July.
For 2019, the BSP said inflation is expected to hit 3.7 percent, up from the 3.3 percent as earlier forecast.
The BSP also announced its 2020 inflation forecast, which was at 3.2 percent.
While the 2018 forecast is an acceleration, both the 2019 and 2020 forecasts are within the 2 percent to 4 percent target range set by the BSP.
Among the factors behind the higher 2018 projection are the higher transportation and utility fares during the month, as well as the higher taxes on tobacco.