The Philippines: Spending time

Text size +-

The Philippines’ retail sector will be looking to turn solid economic growth and burgeoning consumer confidence into profits over the coming year and beyond, though a lack of prime space in top-end malls and high street locations could see rental costs rise, draining black ink from the ledgers of some in the industry.

The retail sector is one of the driving forces of the economy, contributing 12-15% of GDP, with sales expected to top $31bn this year. With UN data showing that more than 60% of the country’s population is economically active, and almost 40% of the total in the 20-44 age range ¬– which is seen by retailers worldwide as the highest-spending bracket – the Philippines has a relatively young and financially stable consumer group.

This group is also in a buoyant mood, according to a series of recent reports that point to the confidence of local consumers being at or around record highs. The Nielsen Global Consumer Confidence Index of early February ranked the Philippines second only behind India on the international confidence ratings, while a similar survey carried out by Mastercard Worldwide and released in the middle of the same month put national sentiment at 80.1 points, a huge jump from the 59.3 of six months before.

In part, the confidence and increased willingness to spend are a reflection of the degree to which the national economy has bounced back from the global recession, posting growth of 7.3% in 2010 – the best performance in almost 25 years – and a sharp rise in remittances from overseas workers, which saw $18.8bn flow into the economy.

It might prove difficult to match such growth in 2011, though the government has said it expects GDP to increase by between 6% and 7% this year, and the IMF forecasts expansion of around 5%. However, financial consultancy PricewaterhouseCoopers (PwC) has taken a slightly more conservative view on the retail sector, forecasting that it will expand by around 3.2%, less than half the estimated 7% growth spurt it enjoyed in 2010.

This slower pace of growth represents more of an adjustment than a sharp drop. With the retail sector’s performance flat in the latter part of 2008 and all of 2009, the 2010 result, on a lower base rate, was in part about making up for lost time. A number of factors also contributed to a rise in consumer spending, with money flowing into the economy in 2010 due to the general election and the feel-good factor of voting in a new president providing an extra boost.

Though this year may see less of an increase, the 3.2% expansion predicted by PwC is in line with the projections for Singapore and Indonesia, with the retail sectors of all three forecast to grow by 3-5% annually for the next five years. This steady rate of expansion will impact on the already tight retail property market, especially in urban centres such as Manila. International property consultancy Colliers has forecast that rising demand and solid economic growth will see vacancy rates in Manila’s shopping malls fall to single-digit levels in 2011, with the pressure on premium locations heating up. There are currently few plans to add to the 5m sq metres of gross leasable area in the city’s malls. This could prompt a shift towards the development of large-scale shopping complexes beyond the confines of metropolitan Manila, Colliers said in its latest report on the Philippine retail sector.

“With limited opportunity for regional-scale mall development in Metro Manila, mall developers are looking into the provinces for expansion,” Colliers said. Any increased competition for premium sites could push rental costs up, as property owners seek to cash in on demand and the anticipated increase in their clients’ turnover.

One concern economists have about any shopping spree is that heated demand could help fuel inflation, with Bangko Sentral ng Pilipinas (BSP) predicting consumer prices will rise by around 4.4% this year, up from the 3.8% posted in 2010. In late February, the reserve bank warned that demand-side pressures could develop in the near future as actual domestic output continued to expand above the historical trend, though the bank’s governor, Amando M Tetangco Jr, said the BSP had “the flexibility in its policy tool kit to address these foreseen risks, and ensure that the inflation outlook remains manageable”.

As long as inflation can be kept under control, for the moment at least there seems to be little to rattle the confidence of Filipino consumers, or that of the country’s retail sector.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Asia

Which markets are pioneering lower-carbon desalination technologies?

Long seen as a high-cost, energy-intensive process, desalination mega-projects are seeking to tap renewable resources to limit the cost and environmental concerns of this crucial technology.

In Retail

South Africa’s retailers brace for slow holiday season

Although they benefit from a market with one of the continent’s highest levels of per capita purchasing power, retailers in South Africa have seen limited growth over the third quarter, due in...


Which markets are pioneering lower-carbon desalination technologies?

Long seen as a high-cost, energy-intensive process, desalination mega-projects are seeking to tap renewable resources to limit the cost and environmental concerns of this crucial technology.