Philippine Markets Newsletter

PH Monday Macro: This consumer metric contradicting another metric is a reason we don’t look at just one indicator

January 30, 2023

Philippine consumer confidence is continuing its downward trend in the last quarter of 2022. With household expenses soaring and fewer jobs available, it adds to the self-reinforcing pessimistic bias around the overall health of the economy.

However, a critical metric interestingly indicates that things might not be as bad as it seems with consumers.

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The Monday Macro Report
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Philippine consumer confidence is once again falling, dropping to -14.6 in December 2022. Recall that it had turned less negative from -15.1 in Q1 2022 to -5.2 in Q2 2022. This inflection was promptly reversed as higher inflation caused consumer sentiment to fall to -12.9 by Q3 2022.

What this declining consumer confidence means is individuals are becoming worried and pessimistic about the future. This leads them to lessen their spending as they innately prepare for some challenges. This becomes problematic for the economy and its growth since consumer spending is the largest component of GDP.

However, one consumer metric provides a different view on the state of consumer affairs—consumer credit.

For many years, credit status has been one of the barometers to measure the financial health of a particular borrower—whether individuals or corporations. It is used to quantify how much confidence lenders may have in borrowers taking out debt.

Credit also measures how much risk someone is willing to take. When the credit markets indicate invigorating borrowers, this tells us that these debtors are in a robust financial position to repay the coupons and the principal of the loans they take out.

On the other hand, when the rate of people taking out debt declines and non-performing loans increase, it suggests some vigilance because potential borrowers are worried about the future.

In such a regard, consumer credit gives investors a glimpse of how much financial confidence people have. As shown below, we can see consumer credit improving.

As exhibited in the chart, we can see that the consumer loans growth rate plummeted during the outbreak of COVID-19. The unprecedented effects led to lockdowns and increased uncertainty among consumers. This resulted in consumer loans’ annual growth rate pulling back to -3% in Q2 2021.

When conditions improved, government ayuda (assistance in the form of cash or goods) and a low-interest rate regime in 2021 gave consumers some confidence to take out loans.

From this, we could observe a gradual spike of YoY (year-over-year) growth rate of 7% in Q3 2022 (compared to Q3 of 2021) – a number in the range before the pandemic.

Nearly all types of loans rose, such as salary loans, residential real estate loans, and credit card receivables; only auto loans did not, mainly because of the elevated car prices attributed to the ongoing chip shortages that are creating a supply crunch and high raw material costs.

Nevertheless, consumers appear more confident about their ability to take financial risks.

Consumer confidence is down, but consumer credit is up. Contradicting as it is, it tells us an engrossing story—consumers are worried about the economy but are still willing to take on loans in the near term.

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!


Angelica Lim
Research Director
Philippine Markets Newsletter
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