I live in the neighborhood of SM Megamall and EDSA Shangri-La. I have to say that if the traffic in the area is any indication that consumer confidence is alive and well—though still reservedly shy—well, retailers can be reasonably expectant that tills will be tilling this holiday season. News of the death of brick-and-mortar retailing is truly and greatly exaggerated.
In the third quarter of this year, the Philippine economy posted an 11.5% drop, year-on-year. This is better than the 16.9% fall in the second quarter but worse than the economists’ consensus.
Indications for the last quarter of 2020 are mixed. The forecasts range from a bleak 14.1% decline to a rather positive 2% growth. Take your pick. Likely, the number will fall somewhere in the minus mid-single digits, especially if you factor in the impact of the recent slew of super typhoons that, literally, stormed the country.
The good news is that there is a resounding unanimity that 2021 will see a very favorable swing in economic growth for the country. The World Bank weighs in with a 5.3% expansion, while S&P Global Ratings projects an even heftier climb of 9.6%. This augurs very well for businesses.
For retailers—and the manufacturers and the importers that supply them—and service providers, these GDP projections are heaven-sent. If 2020 closes at a 9.0% GDP contraction, a 5.3% growth means a swing of 14 points. Given that the Philippines officially entered into recession territory after three straight quarters of negative growth (that’s a misnomer right there), any projection that is higher than 0% excites.
This is especially true since the Philippine economy is largely driven by household consumption. In 2019, this was recorded at 73.2% of GDP. Literally, the fate of our economy is in the hands of the consumers. Although the government’s “Build! Build! Build!” program is expected to add some heft, the heavy-lifting will really come from the consuming public.
The fuel for this expected jump in consumption comes from two drivers that are also projected to be much improved in the coming year. One is remittances by overseas Filipino workers. The most recent estimates place remittances at about $28.7 billion, down 15% from 2019. This is better than the original projection of about 25%. Next year, dollar inflows from OFWs are forecasted to hit $30 billion, within 10% of the 2019 level.
The other driver is employment. In the second quarter, unemployment rose to a dizzying 17%. Fortunately, this is expected to level off to 12.4% on an annual level, with the steady reopening of the economy. Next year, it is seen to improve to 9% (and eventually 6.7% by 2022).
The positive impact of the above two factors can be seen in the recovery of consumer expectations. The most recent survey by the Bangko Sentral ng Pilipinas shows a very encouraging outlook for next year. From 1.26% in the first quarter, consumer expectations dropped precipitously by 54.5% in the third quarter. However, it is expected to improve to only a 4% decline in quarter four, and rise by 25.5% in 2021. Its twin indicator in the industrial sector—the Purchasing Managers’ Index—also bodes well for a rise in industrial output and, potentially, capital expenditures.
If the survey results are spot-on, the car market can expect a much-needed rebound in 2021
Interestingly enough, the BSP’s Consumer Expectations Survey has tracked closely with automobile sales. So if the survey results are spot-on, the car market can expect a much-needed rebound in 2021.
The Chamber of Automotive Manufacturers of the Philippines is sticking to its annual forecast of 240,000 units for 2020. Using the CES projection of 25.5%, this could see car sales expanding to just over 300,000. If we go by sales in September and October and normalize it for 2021, this gives us an even stronger bump to about 318,000 units. If November and December close out at better than average (hopefully), 2021 could be the much-awaited turnaround that the auto industry is hoping for.
At SM Megamall this past weekend, the draw for shoppers was its “Black Friday Mega 3-Day Sale.” The traffic was probably compounded by the MRT-3 being out of service. It is good to know, though, that there is good reason for retailers to cheer…for now.
Having said that, we can’t say it enough: Stay safe. The coronavirus is still out there. That is the sad fact. Keep the masks, the face shields, the physical distancing and the disinfection in place. Vigilance will get us through this.