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Consumer Confidence Weakens in Q4 2009 as Weather-Related Disturbances Dent Outlook

12.10.2009

Consumer confidence declines in Q4 2009 and Q1 2010

Consumer sentiment weakened in Q4 2009, with most respondents citing the damages caused by typhoons Ondoy and Pepeng as factors that could lead to increases in the prices of commodities and in the number of unemployed.  The current quarter consumer confidence index (CI) slid to -36.0 percent in Q4 2009 from -31.9 percent in Q3 2009. Similarly, the consumer confidence index for the next quarter (Q1 2010) dropped to -10.5 percent from -3.7 percent in Q3 2009. Despite the decline in consumer sentiment, the current quarter outlook was better compared to Q4 2008 when the Philippine economy slowed down to register the lowest growth rate in 7 years at 2.9 percent while the US economy shrank by 3.8 percent. This indicated that more consumers think that they are better off now than they were a year ago, when the effects of the global financial crisis were most pronounced. The current quarter outlook mirrored the bearish tone in consumer sentiment in the USA, Australia and Germany.

Going forward, consumer sentiment for the next 12 months showed some slight rebound, with consumers of the view that the effects of the recent natural calamities are temporary and that the economy could bounce back over the near term. Thus, consumers expect that the rise in the unemployment rate will not persist, that prices of goods will stabilize and that family income will increase in the year ahead.

Consumer confidence on all three indicators―economic condition of the country, family financial situation, and family income―dropped quarter-on-quarter as more consumers expected these indicators to worsen, compared to those who expected otherwise. Consumers are most concerned about the domestic economy, particularly job availability and good governance issues. On a year-on-year basis, however, improvements were observed in consumer outlook on these indicators.

High-income group remains upbeat about their own financial conditions

Consumer sentiment across all income groups weakened in Q4 2009. Respondents who anticipate that the economic condition of the country and their own family financial condition would worsen in Q4 2009 increased for all income groups while those who expect otherwise decreased. Despite this, however, the high-income group remained broadly optimistic on balance about their family income and family financial situation in the short term. 

The middle-income group registered the highest number of households that turned pessimistic about the economic condition of the country and their own financial situation in Q4 2009. Nonetheless, their outlook for the next 12 months on family income improved, with more respondents expecting higher income than those expecting otherwise.

Respondents from the low-income group continued to record the most number of pessimists relative to optimists with respect to their outlook on the country’s economic condition and on their own financial conditions. However, their outlook on family income in the next 12 months has been improving for the past three surveys as the number of respondents expecting higher incomes continued to increase.

Households expect an increase in spending on basic goods and services in Q4 2009

While more consumers expect to spend more in Q1 2010 than otherwise, the number who did so declined relative to a quarter ago as income expectations for the near term were less favorable.  Respondents expect to spend more in Q4 2009 for the following goods and services: food, electricity, transportation, fuel, clothing and footwear and hotel and restaurant.

Buying conditions are seen to be less favorable in Q4 2009

Consistent with the less optimistic consumer sentiment, the percentage of respondents that considered the current quarter as a favorable time to buy big-ticket items declined compared to the previous quarter’s results. Buying conditions for housing declined the most, followed by motor vehicles and consumer durables. 

The bearish buying conditions for big-ticket items for Q4 2009 were mainly due to consumers’ decision to give more priority to the purchase of basic household needs as their financial conditions were perceived to be less favorable given the general weakness in economic conditions.

Consumers continue to be cautious in their buying intentions

The more cautious outlook of consumers on buying conditions for Q4 2009 was carried over to the next 12 months. The biggest decline in buying intentions was observed for housing followed by those for consumer durables and motor vehicles.

Selected Economic Indicators: Outlook for the next 12 months

Consumers have a more favorable view on the general direction of selected economic indicators. Fewer respondents, compared to the previous survey, expected prices, interest rates, and unemployment to increase in the next 12 months. Respondents expect inflation to remain steady at 8.7 percent over the course of the next 12 months. Meanwhile, consumers anticipated that the peso would continue to depreciate against the US dollar in the year ahead.

Expenditures of Overseas Filipino Workers in Q4 2009

Most OFW households used remittances in Q4 2009 for food and other household needs (95.2 percent of the households). Over sixty five percent of the households (65.8 percent) used their remittances for education expenses, 62.2 percent for medical expenses, and 49.2 percent for debt payments. The percentage of OFW households that utilized remittances to purchase consumer durables and motor vehicles was broadly steady at 26.0 percent and 6.7 percent, respectively (from 26.5 percent and 6.8 percent in Q3 2009). Those that apportioned part of their remittances for amortization or full payment for houses dropped to 10.5 percent (from 12.1 percent in the previous quarter).

The percentage of households that allocated portions of their remittances to savings significantly increased from only 7.2 percent in Q1 2007 to 44.8 percent in Q4 2009, while those households using remittances for investment also went up from 2.3 percent in Q1 2007 to 7.1 percent in Q4 2009. The utilization pattern of remittances was broadly similar for both NCR and AONCR households.

About the survey

The Bangko Sentral ng Pilipinas started conducting the Consumer Expectations Survey (CES) in the National Capital Region in Q3 2004. The CES became a nationwide survey beginning Q1 2007. For Q4 2009, the CES was conducted during the period 1-27 October 2009 with a total sample size of 5,496 households, of which 2,830 (51.5 percent) were from the NCR and 2,666 (48.5 percent) from the AONCR. The CES samples were drawn from the National Statistics Office’s (NSO) Master Sample List of Households, which is considered a representative sample of households nationwide. The said master sample was generated using a stratified multi-stage probability sampling scheme. The nationwide total survey response rate for Q4 2009 was 95.5 percent (from 95.1 percent in the last quarter’s survey).

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