Moody’s Analytics: Inflation, spending confidence to erode household savings

HOUSEHOLD savings in the Asia-Pacific region are expected to dwindle with inflation remaining persistently high and consumers spending more since the end of the lockdowns, Moody’s Analytics said.

“In the Asia-Pacific region, excess savings began unwinding as effective vaccines were rolled out and lockdowns became less frequent. Put simply, households became more confident to spend and found it easier to do so,” it said in a commentary published on March 9.

“But there’s more at play. Bitingly high inflation is also chipping away at savings rates. Households are having to spend more at the shops as prices move ever higher, leaving less to be saved. Similarly, as central banks raise interest rates to tame inflation, homeowners face bigger repayments,” it added.

The Philippines has had to deal with the highest inflation in about 14 years, driven by high food and fuel costs.

Headline inflation slowed to 8.6% in February from 8.7% in January. However, this marked the 11th consecutive month inflation was above the central bank’s 2-4% target.

For the first two months of the year, inflation averaged 8.6%. The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 6.1% this year.

To tame inflation, the BSP has increased borrowing costs by a total of 400 basis points since May, bringing the key policy rate to a near 16-year high 6%.

Moody’s Analytics said that the household savings rate in the Asia-Pacific rose over the pandemic as families mainly stayed at home due to lockdown restrictions.

“Anxiety pushed household savings rates skyward as families built up their rainy-day funds. Our model-driven estimates show that gross savings rates surged across the Asia-Pacific region,” it said.

“It wasn’t purely a matter of choice that pushed savings rates higher. Lockdowns prevented spending across large parts of the economy, notably on services such as travel and dining out,” it added.

The research firm also said that household consumption declined across the region as families stayed home, which led to more excess savings.

“In those economies where government supports flowed to households, aggregate disposable income lifted and took household savings rates along for the ride,” it added.

However, Moody’s Analytics said that inflation is now threatening to erode those savings.

“Higher prices are denting the mass of household savings built through the pandemic. With inflation still uncomfortably high across the region, we can expect this to continue through 2023,” it said, noting that retail sales in particular are also rising.

An analyst said that household consumption in the Philippines may likely remain resilient despite inflation.

“There may still be some pent-up demand as the economy reopened towards greater normalcy with more confidence on consumer spending, which accounts for at least 75% of the economy, while also correspondingly reducing any increase in savings accumulated during the pandemic,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Philippines is a domestic demand-driven country, with household consumption is one of the biggest contributors to gross domestic product (GDP).

The Philippine economy grew 7.6% in 2022, the fastest rise since 1976. In the fourth quarter, GDP expanded 7.2%.

This growth was mainly driven by household consumption, which surged 8.3% last year from 4.2% in 2021 due to restaurant and hotel spending. In the fourth quarter, household consumption accounted for three-fourths of growth.

On the other hand, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa warned that the country is “facing the triple threat of surging prices, rising borrowing costs and high debt levels.”

The National Government’s outstanding debt hit a record P13.698 trillion at the end of January.

At the end of December, the debt-to-GDP ratio stood at 60.9%, lower than the government’s 61.8% estimate but still above the 60% threshold considered manageable for developing economies.

The government is aiming to cut the debt-to-GDP ratio to less than 60% by 2025 and to 51.5% by 2028. — Luisa Maria Jacinta C. Jocson