Consumers lead the way as Philippine economy surges

By Karen Lema and Erik dela Cruz, Reuters

Posted at Nov 30 2012 07:45 AM | Updated as of Nov 30 2012 11:01 PM

MANILA, Philippines - At the Abenson Appliance Store in central Manila, orders for flat-panel televisions are coming in fast. "People have money to spend," says Jeremiah Santos, a salesman for Sony products at the store in Manila's Makati business district. "Sales are picking up." Data this week showed why. The economy grew 7.1 percent in the three months to September from a year earlier, nearly the same breakneck pace as China and the best in Southeast Asia. Government spending was a big driver, accelerating to 12 percent year-on-year, nearly double the rate a year earlier. But consumers are also a potent force in the economic renaissance of a country once derided as the "sick man of Asia". Household spending, which accelerated to 6.2 percent year-on-year from 5.9 percent in the prior year, contributed 430 basis points to growth, more than three times as much as government spending, official data showed. Part of that boils down to a youthful population. Half of the Philippines' 96 million people are less than 20 years old, many speak English -- a legacy of its past as an American colony that helps attract foreign direct investment - and the population is projected to double to 190 million by 2040. Remittances from more than 10 million overseas workers are an increasing source of growth, pumping an average $1.7 billion every month into the $200 billion economy. Many are skilled engineers and nurses. Philippine stocks scaled a record high this week, while the peso has appreciated more than 7 percent so far this year, making it the best performing emerging Asian currency. Economists say the buoyant growth outlook should give the currency room to climb further. CREDIT BOOM An unprecedented credit boom, which some worry could be close to a bubble, is also driving spending. Consumer loans grew by 17 percent in June from a year ago, based on latest available data from the central bank. Mortgage loans jumped 23 percent in that period to hit a four-year high. "We are growing at a very satisfactory pace," says Leonardo Dayao, president of Puregold Price Club Inc., a grocer popular among the low- to middle-income classes. "While we have projected revenue growth of 25 percent this year, as of the third quarter we're already hitting 29 percent." "We are confident that things will improve further." Retailers are scrambling to open new stores to keep pace with the spending, said Stephen Cua of the Philippine Amalgamated Supermarkets Association. "Stores are doing pretty much okay but not fantastically because the number of stores rose. There is more competition," he said, estimating that the major retail operators - Puregold, Robinsons, SM and Rustans -- added a total 60 to 70 new stores nationwide this year. "People are starting to feel that there's a more continuous trickle of income. Unlike before when it was intermittent." HAND-OUTS Economists at Barclays expect consumer spending to remain strong into the first half of next year due to mid-term elections in May and associated "hand-outs." That means the central bank will likely keep interest rates unchanged at 3.5 percent in the December policy meeting and into 2013, they said. Strong consumer spending has held up the services sector, which accounts for half of gross domestic product and expanded 7.0 percent from a year earlier. Construction and manufacturing growth pushed up the industry sector 8.1 percent. Agriculture, which accounts for a fifth of GDP, rose 4.1 percent. Several construction projects that were stalled in 2011 are being revived, helping fuel a 24 percent rise in public construction year on year. Reconstruction work after floods in the capital and nearby provinces in August also played a part. The robust economy, say economists, gives President Benigno Aquino III more flexibility to go beyond usual half-hearted attempts to crack down on corruption, fix a stifling bureaucracy and find new streams of revenue in a country whose earnings typically end up in the hands of a narrow, moneyed elite. It is also stoking optimism among retailers such as Jollibee Foods Corp., the Philippines' largest fast food chain which outsells global heavyweights McDonalds and Yum Brands Inc. on its home turf. Jollibee's annual gross profit margin of nearly 18 percent in the July-September period was its highest in the last six quarters. SM Prime Holdings Inc., the country's largest mall operator, grew both its net income and revenues by 15 percent in the first nine months from a year ago. Shares of SM Prime are up around 36 percent this year, outpacing the main index's 28 percent gain -- among the strongest globally. Annie Garcia, president of SM Supermalls, a unit of SM Prime Holdings, is seeing a rise in remittance money flowing into shopping malls. "We're seeing a rise in consumer spending in part because of these remittances," she said. Puregold Price Club said its net sales in the third quarter jumped 45 percent from a year ago after it opened 38 new stores this year and acquired a rival supermarket chain. Its shares have soared more than 81 percent this year. As Filipinos' wealth grows, their preference for pricey but high-quality electronics products is also rising. "Obviously there is preference for LED TVs," said Santos, the Sony salesman at the Abenson Appliance Store. "We are ready for the peak season."