Recovery dragged by weak spending

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    Makati's Central Business District. (Photo by Rhoy Cobilla)

    Online stockbrokerage firm Colfinancial.com said consumer and business spending may be a drag to the recovery of the economy this year as spending remains weak and business confidence still low.

    The stockbroker said  household consumption has declined by 9.3 percent in the third quarter alone.

    Colfinancial.com said it will take time for consumption to return to pre-pandemic level as macroeconomic challenges remain.

    “The number of unemployed Filipinos stood at 3.8 million in October 2020, nearly twice the figure during the same period in 2019. Consumer confidence also remained weak for the second straight quarter, at -47.9 percent in the fourth quarter,” it said.

    Colfinancial.com said it could take time for consumer confidence to return to normal, pointing to the 2018 experience when consumer confidence likewise dropped due to the steep rise of inflation. It took four quarters for consumer confidence to turn positive.

    “Finally, despite the easing restrictions and improving mobility, the lack of financial support from the government following the social amelioration program in 2Q20 (second quarter of 2020), could serve as a drag to consumer spending this 2021,” it said.

    Colfinancial.com also noted that rising food and oil prices pose a threat, as data from the Food and Agriculture Organization of the United Nations showed the food price index in December averaged 107 points, up 2.2 percent from November and 6.4 percent higher from the prior year.

    “Apart from sugar, all other sub-indices rose in December with vegetable oil rising the most (+26 percent), followed by dairy, meat and cereals,” it said.

    “Meanwhile, oil prices have continued to increase with Dubai Crude up roughly 6.5 percent to US$54.5/bbl (barrel) in mid-January 2021 versus end 2020 levels,” it said.

    Colfinancial.com noted that the recent strength of the peso could partly cushion the impact of higher food and oil prices however.

    “Economists are currently projecting inflation to increase to 3.3 percent in 2021 from 2.7 percent in 2020. While this is still within the BSP’s (Bangko Sentral ng Pilipinas) comfort level of 2-4 percent, higher inflation could negatively affect consumer companies by increasing costs and pulling down consumer spending,” Colfinancial.com said.