Angelo Taningco
Economist, Treasury Group

Philippine household consumption, which comprises the bulk of the country’s domestic demand and economic size, could grow at a more moderate pace in the third quarter (Q3) as consumer confidence waned.

According to the Bangko Sentral ng Pilipinas (BSP) latest Consumer Expectations Survey (CES), the overall consumer confidence index (CI) for the current quarter fell to 10.2% in Q3 from 13.1% in the second quarter (Q2). Notably, the Q3 reading is the second-highest next to the record-high Q2 print since the CES was introduced in 2007. But the quarterly decline in the index stems from survey respondents’ concerns in Q3 on peace and order-highlighting the Marawi crisis; calamities; little or no change in household income; and upward price pressures (inflation), among others.

Existing literature documents consumer confidence to be a good predictor of household consumption. For the Philippines, we find the year-on-year (yoy) growth rate of household final consumption expenditure (HFCE)-which constitutes 74% of nominal gross domestic product (GDP) in the first half of 2017-to be positively correlated with CI as per its correlation coefficient of 0.61 spanning the first quarter (Q1) 2007-Q2 2017 period. We also establish a statistically significant and positive relationship between HFCE growth and CI for the same period. (See Figures 1 and 2.)

The implication of our findings is that Philippine GDP growth for Q3 is likely to moderate from its previous quarter’s pace amid weaker consumer confidence and potentially slower household consumption growth. Meanwhile, the same CES results depict a higher degree of consumer optimism for the next quarter, i.e., the fourth quarter (Q4), as the CI for the next quarter climbed to 17.8% in Q3 from 13.6% in Q2; this more positive outlook emanated from consumers’ expectations of an increase in household income, more job opportunities, and better peace and order situation. If this sentiment is maintained by Q4, then we could see a rebound in GDP growth by the end of the year.

Figure 1: CI for Current Quarter and HFCE Growth
Q1 2007 – Q3 2017
(percent)

Figure 2: CI for Current Quarter and HFCE Growth
Q1 2007 – Q2 2017

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