A RECENT analysis by Oxford Economics of the results of the most recent consumer expectations survey conducted by the Bangko Sentral ng Pilipinas (BSP) came to some worrisome conclusions about the prospects for the economy over the next year. There is a disconnection between consumer sentiments and the actual state of the economy, and the government should take steps to address this effectively to prevent the pessimistic outlook from becoming a self-fulfilling prophecy.
The BSP conducts the consumer expectations survey every quarter; the most recent edition covered the second quarter of this year and was released late last month. In the survey, consumers are asked about their confidence in overall economic conditions, family economic situation, and family income for the current quarter, the next quarter and the next 12 months. Respondents are also asked whether they have savings or loans and about their outlook on specific indicators, including inflation, the peso borrowing rate, the peso-US dollar exchange rate and the unemployment rate.
The results of the latest survey showed significant negative sentiments among consumers for Q2 and Q3, with a more positive outlook for the year ahead. As the survey is released near the end of the quarter, the "current quarter" results can probably be overlooked as they are retrospective, but the outlook for the near future is important. Compared to the Q1 consumer expectations survey, the general outlook for the next quarter (Q3) dropped sharply from 2.7 to –0.4, or in other words, from optimistic to pessimistic; the indicator is derived by subtracting the percentage of negative responses from the positive ones.
In particular areas, more consumers in Q2 than in Q1 expect inflation to increase over the next quarter and next year, interest rates to increase, and the peso to depreciate further against the US dollar. Only in perceptions of the unemployment rate were sentiments in the Q2 survey more positive than the previous quarter, which may seem ironic given the latest figures showing unemployment increased slightly last month.
While the BSP's 66-page report on the survey does a thorough job of explaining what the results were and how they were arrived at, the Oxford Economics analysis, which perhaps benefits from third-party objectivity, does a much better job of explaining what the results actually mean. There is a clear contradiction between consumer sentiment and the actual state of the economy. Overall economic growth, although a bit lower than expectations, is still quite strong and within a fraction of a percent of targets. Inflation has dropped back, too, with the normal 2 to 4 percent target range and is steadily improving, and unemployment is generally improving as well, notwithstanding the latest small increase, which in any event was accompanied by a substantial improvement in job quality, indicated by a sharp drop in underemployment.
However, consumer sentiments indicate lingering worries about inflation and its effect on household financial well-being. Oxford Economics points to the survey's results of a sharp drop in the number of people indicating that they plan to buy big-ticket items in the near future, as well as a decrease in the number of people with loans as signs that people are saving their money for basic needs. The research firm explains that this lag in sentiment compared to current reality is not unusual; people learn from experience, and those who found themselves in a difficult situation when inflation rates were much higher are naturally going to be more cautious. The consequence of that, however, is bad news for consumer spending overall, particularly for discretionary spending on travel, leisure, entertainment and non-essential retail. The effect will be to slow economic growth overall, since the economy is heavily reliant on consumer spending.
In order to prevent this from happening, the government needs to address the specific concerns of consumers — inflation, and the perceptions of inflation, of basic needs such as food and energy — in clear, direct terms that consumers can easily relate to their own circumstances. Steps that are taken to reduce inflation should be explainable in practical terms, such as how much a family can expect to save on their grocery budget, rather than as vague assertions that the steps will help; the claims accompanying the implementation of the lower rice tariff are a good example of the latter. And if the steps being taken do not provide the sort of clear explanation needed, then perhaps those steps need to be reconsidered.
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