Time for prudent spending
Revenge spending was in full display through the latter part of 2022 as Filipinos celebrated the easing of COVID-19-related restrictions and gave in to their pent-up desire to enjoy life as they used to before the crippling pandemic confined them to their homes for extended periods starting in March 2020.
Indeed, not even the escalation in the prices of goods and services to a 17-year high as well as the jumbo hikes in interest rates could get in the way of their spending spree, helping rev up the growth in the country’s gross domestic product in the third quarter of last year to a better-than-expected 7.6 percent.
As ING Bank senior economist Nicholas Mapa noted, the third quarter GDP number “bested market consensus by a mile,” because instead of cutting back on spending because of red-hot inflation, the reopening of the economy “appears to have overshadowed the inflation specter.”
Mapa added that Filipino households are “grinning and bearing higher prices to finally feel that normalcy has returned.”
With consumer spending going up to another level over the holidays that were the first to be celebrated with much more freedom since 2019, the growth streak is expected to have extended to the fourth quarter, prompting market watchers to raise their full-year GDP growth forecast for the Philippines for 2022.
The World Bank, for example, erased its original 2022 GDP growth projection of 6.5 percent and penciled in a more robust 7.2 percent. The Asian Development Bank was even more bullish, projecting a 7.4-percent growth in 2022 from the September 2022 forecast of 6.5 percent.
“Being cooped up indoors for more than two years may have fueled a bad case of revenge spending with Filipinos finally getting a chance to do things for the ‘first time in forever.’ Such a mindset has unleashed strong spending on non-basic items,” Mapa said.
These include home improvement projects, home purchases, and even cars with unit sales accelerating by 31.3 percent in 2022, suggesting that Filipinos were willing to spend even amid high inflation and more expensive loans just to complete dream projects that were put on hold during the prolonged lockdowns.
Filipinos will do well, however, to immediately change their mindset from splurging to saving this year, as economists and think tanks warn of a slowdown in the global economy in 2023—perhaps even a recession in economic powerhouses such as the United States—which is disturbing news for countries like the Philippines that depend on them for trade and investments.
This is even if more cash is coming into the hands of millions of Filipinos this year, with the further lowering of personal income taxes and as the last tranche of mandated salary hikes under the Salary Standardization Law (SSL) of 2019 took effect last Jan. 1.
Internal Revenue Commissioner Romeo Lumagui Jr. said that with the reduction in the annual income tax rates this year, individuals earning purely compensation income stand to receive a bigger take-home pay.
So will government workers who will benefit from the SSL, with Budget Secretary Amenah Pangandaman saying that the salary increase should help cushion the impact of inflation, which has eroded Filipinos’ purchasing power.
Indeed, the primary 2022 economic issues of surging prices and rising borrowing costs continue to overshadow the economy, thus the urgent need to snap out of the spending stupor and double down on rebuilding savings that were drastically reduced if not eradicated amid the pandemic.
There is growing consensus that inflation may have already peaked in December 2022, but the Bangko Sentral ng Pilipinas is ready to take further action on expectations that the rate will remain elevated due to more pricey food—including onions and eggs—and electricity.
Also, a cause for grave concern is the fact that a good portion of the manic spending last year was financed by debt and savings.
This puts many households in a precarious financial situation should more shocks come the country’s way this year, the same way that Russia’s invasion of Ukraine, for example, dealt the global economy a heavy blow just when it was starting to recover most of what it lost during the prolonged pandemic.
As Pantheon Macroeconomics underscored, household spending in the Philippines in the third quarter last year was “unsustainable,” thus will likely cause the economy to slow this year with the sputtering of the consumer-driven growth engine.
The government can prevent this grim scenario from coming to pass by using all the tools in its possession to drastically bring down prices of everyday necessities, from eggs to sugar, rice, meat, and onions.
This way, the windfall from the salary hikes and the cutback in income taxes will truly make a positive impact on the lives of entitled Filipinos and not just be eaten away by price hikes.
At the same time, prudent spending can continue without depleting Filipinos’ hard-earned savings, thus helping ensure that the economy will remain firmly on the path to full recovery.
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