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17 June 2010

Consumers warm up in Philippines

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Reserved optimism prevailed among Philippine consumers after the government raised this year’s economic targets on hopes of quicker household spending. Philippine economic managers on Tuesday revised the country’s growth target upwards following the better-than-expected expansion in the first quarter of this year.

Citing consumer spending as among the drivers of this year’s recovery, the inter-agency Development and Budget Coordinating Committee raised the country’s growth target to a range of 5 percent to 6 percent, from the original range of 2.6 to 3.6 percent.

The adjustment was prompted by the first quarter growth of 7.3 percent, the highest in three decades.

“This shows that the economic growth is gaining traction and consumer spending is picking up. What these upgrades are showing is the increase in consumer confidence and the upbeat outlook of the businesses,” said April Lee-Tan, head of research of CitisecOnline.

Indeed, the Bangko Sentral ng Pilipinas last week said consumer confidence for the second quarter dipped slightly, but optimism for the coming 12 months hit a record.

“Given the low interest rates, consumers will be encouraged to buy more and borrow more for their homes and even cars,” said Astro del Castillo, managing director of First Grade Holdings.

On Wednesday, the Chamber of Automotive Manufacturers of the Philippines announced that sales this year may revisit the pre-Asian crisis levels.

Full speed ahead Steven Cua, Philippine Amalgamated Supermarkets Association Inc. president, said “Retailers’ expansion plans for the second half of the year are at full speed ahead.”

Cua said the industry sees an increase in sales across all products, as consumers have more capacity to spend.

“They can now buy more than what they just need,” he said, adding that higher disposable income among consumers brings better sales for supermarkets, “especially in an economy where food occupies the major slice of a consumer’s spending pie.”

Food products comprise about 65 percent of supermarket sales, he added.

Too early to tell
Despite the optimism, retail giant SM Investments Corp. (SMIC) however will keep its growth target steady for now.

“We saw some strength in our first quarter performance, but we’re maintaining our growth targets. It’s still too early to tell,” Cora Guidote, SMIC vice president for investor relations, said.

She however didn’t rule out an upward adjustment in the company’s target in the third quarter provided remittances improve, the economy picks up speed in the second quarter, and Philippine politics stabilizes.

The executive said the company’s performance for the first three months already showed an increase in consumer spending. The retail group posted a net income of P1.1 billion, up by 16 percent, as total sales grew by 15.3 percent to P29.4 billion.

SMIC earlier said it expects a 10-percent growth in full-year earnings.

A grain of salt
“Consumer spending will bring people to their malls,” said Jun Calaycay of Accord Capital.

But the optimism must be taken with a grain of salt since the surprise growth for the first three months was driven by election spending, said the analyst.

“Election spending will not be present in the second quarter so we have to see how that will impact on the second and third quarter,” he said.

The analyst said the doubling of unemployment last April should also temper optimism driven by the resilience of remittances, which grew by 5.4 percent on the same month.


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