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consumptio
n-driven
economy
June 21, 2019 | 9:05 am
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Consumer spending has traditionally been the driving
force behind the growth of the Philippine economy in
recent years, with households contributing majority
of aggregate expenditures. This year, the outlook for
the country’s economy remains strong, which is still
expected to be led by robust consumer spending as a
result of lower inflation.
While annual private consumption growth declined
from 5.9% in 2017 to 5.6% in 2018, the World Bank
said it is likely to rebound to 5.9% at the end of the
year and to 6% in the following year due to declining
inflation and the continued job generation in the
economy.
The organization added that this will further fuel
remittances that are expected to remain steady as
new employment opportunities for Filipinos abroad,
including Japan, Germany and Poland, become
available.
“The country’s growth outlook remains positive,”
World Bank Country Director for Brunei, Malaysia,
Philippines and Thailand Mara K. Warwick was
quoted as saying in a statement. “Higher private
consumption due to lower inflation, steady growth of
remittances, and election spending will fuel growth
this year. Growth in public investment will be
tempered in the first half of 2019 but is expected to
recover in the second half of the year.”
A consumption-driven economy like the Philippines is
backed by favorable demographics. According to
multinational retail and commercial bank Banco
Santander, the country has a youthful and vibrant
consumer market. For instance, it said that Filipinos
put great importance to shopping experience; they
visit malls not only to make purchases but also to get
along with their families or do some social activities.
“Philippine consumers enjoy visits to retail stores in
which they are able to touch and feel the product, and
value the services throughout the shopping process,”
Banco Santander said in its Web site.
While aspiring Filipino middle-class consumers see
shopping in modern retail as a representation of
urban lifestyle, they don’t like ostentatious
expenditure, the financial institution said, noting that
they are conformist and spontaneous rather.
The Banco Santander also noted that Filipinos are
among the most socially-conscious consumers in the
world, with 86% of them are willing to pay extra for
products and services that come from companies
committed to positive social and environmental
impact.
Moreover, the institution said that advertising also
plays a significant role in increasing the consumer
culture among Filipinos by portraying physical
attractiveness and material goods as a gateway to
happiness and success.
According to a KPMG report titled “Philippine
Consumer Market Report,” published in 2017, income
growth is the main factor behind the growth in
consumption of Filipinos, and there are key drivers
behind this expansion.
On the demand side, remittances from overseas
Filipino workers (OFWs) have played a major role in
the changes seen in the domestic economy in the last
few decades, said the report.
“Money sent home from abroad by OFWs has become
a large and steady source of income for households in
the Philippines. A study by the Asian Development
Bank (ADB) has pointed out that remittances allow
households to spend more on non-essential goods
and services. In particular, remittance-receiving
households spend less on food as a proportion of
income and spend more on clothing, communication,
transportation and leisure,” the KMPG report said.
On the supply side, it said that rapid growth in the
services sector has transformed the country into a
predominantly service-based economy. Among the
services subsectors, real estate, finance, trade, and
telecommunications are considered as long-time
leaders, while tourism is being acknowledged as fast-
emerging and high-potential subsector.
Moreover, the business process outsourcing (BPO)
services industry has emerged as a major source of
employment and dollar-earner, the report added,
noting that it is catching up with OFW remittances in
terms of contribution to the economy.
As the report further explained, consumption
behavior is changing as income grows, with those who
earn more have greater spending power.
“One of the peculiarities of the Filipino consumer is
that lower-income households tend to buy products
that are smaller in volume or mass even if these turn
out to be more expensive than larger packages in
terms of unit costs. This is best seen in shampoos
which are sold in sachets instead of in bottles and are
very popular with consumers,” the KMPG report said.
This sachet culture — aside from the convenience of
smaller product packages — may be attributed to low
incomes of Filipino consumers in general. Many
consumers cannot afford to buy in bulk even if these
are more cost-effective on a per unit basis because
the one-time costs are simply beyond their spending
budgets, the report explained.
“But sustained income growth that significantly
increases the incomes at the bottom of the population
has the potential to alter this dynamic in consumer
markets. It goes without saying that the behavior of
consumers will differ according to their income
levels,” the KMPG report said. — Mark Louis F.
Ferrolino
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