BMI View: We expect the Philippines to remain one of our favourite consumer markets in South East Asia in 2017, boosted by high levels of private consumption, strong remittance inflows and an improving labour market. Although inflation is expected to pick up in 2017, we do not believe this will weigh heavily on consumer spending decisions, at least not over the short-term.
The Philippines consumer will continue to outperform over Q1 2017 driven by an ongoing boom in the services sector and one of the fastest growing economies in South East Asia. We forecast real private consumption to expand by 5% y-o-y in 2017, which although shows a slight deceleration from 2016, remains above the average 4.6% growth rate for consumption between 2005 and 2014. Moreover, consumer confidence in the Philippines reached 95.2 on the MasterCard Index in June 2016, the highest level since records for the country began in 1995. This reflects the constructive pro-growth policies of the Duterte government and the economy's continued resilience despite external weakness, leading our Country Risk team to forecast real GDP growth of 6.9% and 6.3% for 2016 and 2017 respectively.
|Consumption Levelling Off But Remains Strong|
|Philippines - Private final consumption, real growth % y-o-y|
|e/f = BMI estimate/forecast. Source: BMI/National Statistical Coordination Board|
Remittances from overseas act as a vital source of secondary income for Filipinos and will continue to buttress levels of household spending over 2016 and 2017. Average monthly remittances received in 2016 amount to USD2.2bn, with monthly inflows growing 11% y-o-y since 2001. Over a third of domestic consumers receive remittances, with the majority arriving from the 1.9mn Filipinos living and working in the US. We expect remittance values to remain strong as our Country Risk team forecast the US dollar to continue its appreciatory trend in 2017 on the back of higher interest rates relative to Japan and the Eurozone, and Trump's proposed corporate tax repatriation holiday rate, which could see a rise in the demand for USD as funds are repatriated (See: ' Trump Presidency: Higher Yields & A Stronger USD ', 16 November 2016). Philippine households receiving remittances denominated in USD will therefore see purchasing power increase, boosting spending on essential items such as food and clothing.
|Remittances: A Key Driver Of Household Spending|
|Philippines - (2001-2015)|
Our favourable outlook for the Philippine consumer is further underpinned by an improving labour market. According to the Philippine Statistics Authority (PSA), the unemployment rate declined to 5.4% in Q316, the lowest level since 2005. We forecast unemployment to come in at 6.3% by end of 2016 and 6.2% for 2017, which although higher than many regional peers, shows a declining trend.
However, with the absence of a national minimum wage, incomes in the Philippines vary considerably between sectors and administrative regions. A significant proportion of the labour force remains in low-wage jobs, particularly in agricultural and manufacturing areas such as Mimaropa. The daily minimum wage in Mimaropa amounts to just PHP217 (USD4), compared to PHP491 (USD10) in Metro Manila. While we expect to see further wage growth across the board in 2017, the best consumer prospects will remain concentrated in the urban retail hubs of Manila, Quezon City and Davao.
|Philippines Unemployment Rate (%)|
|Source: Philippine Statistics Authority|
Inflationary pressures present a possible downside risk over coming quarters, driven by strong domestic demand and a depreciating peso against the dollar. We forecast consumer prices to pick up over 2017, averaging 3.3% compared to an estimated 2% in 2016. Higher import costs owing to unfavourable currency swings and rising commodity prices will be the principal drivers behind this acceleration.
However, we believe these inflationary pressures will be gradual and therefore will not have a significant impact on consumers. We believe there are no immediate pressures for the Philippines' central bank (BSP) to hike up interest rates as inflation remains at the lower end of their target range. Both headline and core inflation remained stable in October 2016, coming in at 2.3% y-o-y, similar to the pace recorded in September. Over the short-term, we do not expect inflation to head significantly higher as commodity prices are only forecasted to recover slowly. That said, if the current weakness in emerging market currencies continues as does the sharp rally in commodities following the election of President Trump continues, this could see inflationary pressure rise faster than we are currently anticipating.
|Inflation Ticking Upwards But No Major Concerns|
|Philippines - Consumer price inflation, % y-o-y, average|
|f= BMI forecast. Source: BMI/Bangko Sentral ng Pilipinas|
The Philippines Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Philippines Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Philippines to test other views - a key input for successful budgeting and strategic business planning in the Philippine retail market.
- Target business opportunities and risks in Philippines through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.