The holiday season is fast approaching, and in the Philippines, it extends for several months before and after the Christmas and New Year’s week.

During the “season of giving,” individuals and families purchase gifts and presents for their loved ones, friends, and even business partners. This heightened gift-giving tradition results in increased demand for various business products and services.

Considering that consumer spending plays a significant role in driving a substantial portion of the Philippine economy, let’s examine the historical trends in their purchasing power during the holiday season.

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The holiday season in the Philippines is marked by the exchange of gifts and tokens of appreciation among individuals, families, and corporate associates, fostering goodwill and igniting a surge in the demand for products and services, thus stimulating economic activity.

As highlighted in our previous reports, consumer spending plays a pivotal role in propelling the Philippine economy. A key indicator of consumer spending is consumer sentiment, which is influenced by various factors, including family income, employment conditions, and expectations related to the macroeconomic environment.

Crucially, the amount of additional cash available to consumers significantly impacts their propensity to spend. Put simply, the more cash a consumer has at their disposal, the more likely they are to spend it purchasing goods and services.

A way of measuring this additional cash is by looking at the monthly cash remittances sent by overseas workers to their families and friends.

A reason for this is because a significant portion of Filipino households incorporates these funds into their household budget. Families would allocate the inflows to cover basic expenses such as groceries, utility bills, and tuition fees while also allowing for discretionary spending on non-essential items

Furthermore, these remittances often surge during the “-ber months,” which span from September to December and signify the traditional Christmas countdown.

From 2018 to 2022, the monthly growth rate of cash remittances from November to December averaged a significant 21%, emphasizing a substantial increase in overseas workers’ remittance activity during the month of December.

This seasonal influx of additional remittances to Filipino households is expected to boost consumer confidence and purchasing power. Consequently, this will drive an increase in their buying behavior, ultimately leading to a rise in overall demand, which, in turn, will propel business revenues and stimulate economic activity.

The chart above illustrates the consistent growth in the value of cash remittances over the past decade. While the month-to-month growth remains positive, the long-term growth rate has been on a decelerating trend since around 2014.

Several factors contribute to this trend, including changes in local and international policies and economic conditions. One common reason for the slowdown in growth is the concept of diminishing percentage growth, also known as “diminishing marginal returns.”

In economic terms, this theory suggests that as a certain level of production capacity is reached, adding additional factors of production may result in lower levels of output. In financial terms, this means that sustaining a constant high percentage growth rate becomes increasingly challenging as the current value becomes larger and larger.

In the context of cash remittances, the rising values make it more difficult to maintain the same growth rate due to the larger base represented by the current remittance amount.

The consistent growth in cash remittance values is evident, starting at USD 1.3 billion in January 2010 and reaching USD 2.9 billion by January 2023. This upward trajectory not only indicates a significant increase in remittances but also reflects the growing demand for Filipino overseas workers.

The expanding overseas job market with higher wages has attracted a rising number of Filipino workers seeking employment abroad, reinforcing the continuous growth in remittance values.

This year’s December cash remittance figures are of particular interest due to the global economic challenges that are impacting consumer sentiment. On top of that, 2023 is technically the first year without lockdowns impeding post-pandemic recovery. If uncertainty prevails, it may lead to lower remittances from overseas workers.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!

Regards,

Angelica Lim
Research Director
Philippine Markets Newsletter
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