INCOME AND EXPENDITURE: PHILIPPINES. Euromonitor International March 2015

Transcription

1 INCOME AND EXPENDITURE: PHILIPPINES Euromonitor International March 2015

2 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t I LIST OF CONTENTS AND TABLES Chart 1 SWOT Analysis: Philippines... 1 Chart 2 Overview of Income and Consumer Expenditure in the Philippines: Gross Income by Age... 2 Growth in Per Capita Annual Gross Income To Accelerate in the Medium and Long Term... 2 Chart 3 Top Gross Income Band (US$150,000+) by Age: 2014 and Chart 4 Total Gross Income: Social Class Composition... 4 Low-income Earners Are the Majority... 4 Chart 5 Age Composition of Social Classes ABCDE: Household Income Distribution... 5 High Level of Income Inequality... 5 Chart 6 Average Household Annual Disposable Income by Decile: 2014 and Chart 7 Household Income Distribution: Consumer Expenditure by Category... 7 Education Spending Will Grow the Fastest... 7 Chart 8 Chart 9 Real Growth Indices of Fastest Growing Consumer Spending Categories: Real Growth Indices of Slowest Growing Consumer Spending Categories: Consumer Expenditure by Region... 9 National Capital Region Has the Highest Purchasing Power... 9 Chart 10 Total Consumer Expenditure by Region: Chart 11 Per Household Consumer Expenditure by Region: Consumer Expenditure by Income Level Stark Differences in Spending Pattern Across Income Levels Chart 12 Spending Patterns of Deciles 1, 5 and 10: Chart 13 Category Expenditure by Each Decile as a Proportion of Total Category Spending: Definitions Deciles Discretionary Spending Disposable Income Gross Income Mean Income Median Income Middle Class Non-discretionary Spending Social Class A Social Class B Social Class C Social Class D... 14

3 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t II Social Class E... 14

4 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 1 INCOME AND EXPENDITURE: PHILIPPINES Growth in consumer income and expenditure in the Philippines is expected to accelerate in the medium and long term, backed by the country s stable economic growth, youthful population and rising middle class. However, income inequality and poverty remain relatively high, resulting in stark divergence in spending patterns and hindering the market s growth potential. Spending on education is set to grow the fastest in the coming years, driven by rising demand for private and higher education. Chart 1 SWOT Analysis: Philippines Source: Euromonitor International Chart 2 Overview of Income and Consumer Expenditure in the Philippines: 2014

5 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 2 Source: Euromonitor International from national statistics GROSS INCOME BY AGE Growth in Per Capita Annual Gross Income To Accelerate in the Medium and Long Term The Philippines per capita annual gross income stood at PHP105,044 (US$2,366) in 2014, growing at an average annual rate of 3.2% in real terms since Real growth of the Philippines annual per capita gross income was below the Asia Pacific average of 4.2% during the same period, mainly due to the country s sharp economic slowdown in 2009 amidst the global financial crisis of Over the forecast period of , the Philippines per capita annual gross income is expected to expand faster, rising by an average of 4.2% per annum in real terms. This will be backed by the country s stable and robust economic growth that is forecast for the period, driven by strong domestic demand and higher investments. The Philippines annual real GDP is estimated to expand by an average rate of 6.0% per year between 2015 and 2030, compared to the 6.3% recorded during the period. The age group is the most prominent amongst the country s top income earners: In 2014, those aged accounted for the largest share of the most affluent income earners (those with an annual gross income of US$150,000+ in constant terms), at 19.6%, followed by the age group which represented 19.2% of the highest income earners. These profiles typically correspond to business owners and/or well-educated professionals holding top positions in the Philippines private sector;

6 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 3 By 2030, the age bands of and will still account for the largest share of the Philippines top income earners, at 19.6% and 19.3% respectively. This will be driven by the country s economic growth and an expansion of the private sector, which will continue creating attractive business and employment opportunities for the population during the period. The age group 65+, however, will witness the largest gain in the share of the highest income earners in the Philippines, from 0.9% in 2015 to 1.4% by This reflects a gradual rise in the ageing trend of the Filipino population. Chart 3 Top Gross Income Band (US$150,000+) by Age: 2014 and 2030 Source: Euromonitor International from national statistics Note: Data for 2030 are forecasts. The Philippines youthful population is a key determinant of the country s distribution of total gross income: In 2014, the highest concentration of total gross income in the Philippines was witnessed in the age band 15-39, illustrated by the large hot spot on the map below. Although the typical average gross income of this age segment is relatively low (ranging between US$670 and US$4,700), the large number of individuals in this age group results in a high concentration of income for this age segment. In 2014, Filipinos aged represented 28.0% of the country s total population. Chart 4 Total Gross Income: 2014

7 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 4 Source: Note: Euromonitor International from national statistics The horizontal axis depicts the age of individuals and the vertical axis the distribution of per capita income by annual gross income brackets. The shading refers to the total income in thousand US$. The closer to red, the larger the amount of total income in that age and income range. SOCIAL CLASS COMPOSITION Low-income Earners Are the Majority The Philippines social class distribution is uneven as a result of the country s high level of income inequality: Social class E (low-income earners) is the largest in the Philippines, representing 42.0% of the country s population aged 15+ in This is largely similar to regional peers, such as Vietnam where social class E accounted for 39.4% of the population aged 15+ in the same year. As the Philippines consumer market is dominated by low-income earners, marketers of basic, value-for-money products and services will find the most opportunities in the country; Between 2009 and 2014, the share of social class E out of the Philippines population aged 15+ declined from 43.5% to 42.0%. This has been driven by the country s economic growth and improved employment situation, which resulted in higher income for low-income earners and allowed a portion of individuals in social class E to make the transition towards higher social classes; In 2014, most Filipinos in social class E belonged to the age group 15-19, owing to the country s mainly young population and higher unemployment rates for the youth;

8 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 5 Social class E is expected to remain as the dominant social class in the Philippines by 2030, representing 40.7% of the country s population aged 15+ by that year. The age group will continue to be most representative in social class E by 2030, driving demand for basic, budget necessities, such as food and clothing. Chart 5 Age Composition of Social Classes ABCDE: 2014 Source: Euromonitor International from national statistics HOUSEHOLD INCOME DISTRIBUTION High Level of Income Inequality Growth in household income levels in the Philippines are expected to accelerate in the medium and long term: During the period, per household annual disposable income in the Philippines increased on average by 2.2% per year in real terms to reach PHP420,946 (US$9,481) by The overall increase during the period was 11.7%, backed by the country s strong economic recovery since 2010; For the forecast period of , growth in the Philippines annual disposable income per household is estimated to accelerate to 3.6% in real terms on average per year to achieve an overall real increase of 68.9% over the period. The Filipino economy is expected to perform well in the medium and long term, driven by higher spending on infrastructure and growing domestic demand. Income inequality levels in the Philippines remain relatively high, despite some improvements since 2009: The richest 10.0% of households (decile 10) in the Philippines accounted for 33.1% of the country s total annual disposable income in 2014, compared to the poorest 10.0% of households (decile 1) that received 1.3% of total annual disposable income;

9 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 6 During the period, the share of total annual disposable income of decile 10 declined from 34.9% to 33.1%, while that of decile 1 dropped slightly from 1.4% to 1.3%. The share of wealthy households income fell more significantly during the period since uncertainties in the domestic and global economies have affected their earnings, which often consist of bonuses, business profits and returns on financial instruments; Reducing poverty and inequalities continue to be among the Filipino government s priorities. The government has implemented a cash transfer programme called Pantawid Pamilya (Family Subsistence) since 2007, whereby poor households will obtain monthly small grants from the government, if they keep their children in school and take them regularly to health centres. According to the Philippines Statistics Authority, 25.8% of the Filipino population still lived below the national poverty line as of 2014; The Philippines Gini index a measure of income inequality ranking between zero (perfectly equal) and 100 (perfectly unequal) improved from 46.4% in 2009 to 45.3% in By 2030, the Philippines Gini index is forecast to decline further to 44.1%, reflecting a constant improvement in the income distribution pattern. Chart 6 Average Household Annual Disposable Income by Decile: 2014 and 2030 Source: Euromonitor International from national statistics Note: Data for 2030 are forecasts. Data are in constant US$. More than six out of 10 households in the Philippines have an annual disposable income below the mean: In 2014, the Philippines mean household annual disposable income stood at US$9,481. Nevertheless, this is not a reflection of realities in the country, as at least 63.2% of Filipino households have an annual disposable income below that level. For companies, the country s relatively low income level means that a large segment of households in the Philippines can be targeted for necessities and budget goods and services. Chart 7 Household Income Distribution: 2014

10 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 7 Source: Euromonitor International from national statistics In 2014, the Philippines middle class composed of households with an income between 75.0% and 125% of median income totalled 5.4 million households, an 11.1% increase over its 2009 levels, as a result of the country s economic growth and the government s income redistribution programme. As a percentage of the country s total number of households, however, the country s middle class declined slightly from 24.6% in 2009 to 24.1% in 2014; The expansion of the Filipino middle class is expected to continue over the period of , with the number of middle class households forecast to reach 7.9 million (equivalent to 24.9% of the total) by While stable economic growth will support this trend, improvement in income distribution will be vital to ensure a sustainable growth of the middle class in the Philippines. CONSUMER EXPENDITURE BY CATEGORY Education Spending Will Grow the Fastest The proportion of discretionary spending of Filipino households remained relatively low but is set to rise in the long term: Total consumer expenditure in the Philippines increased at an average annual rate of 4.9% in real terms between 2009 and 2014 (equivalent to a total real increase of 26.9% during that period) to reach PHP9.1 trillion (US$205 billion) by The expansion was supported by rising per household disposable income levels, coupled with growing remittances inflows and positive consumer confidence on the back of the country s strong economic performance. For the forecast period of , the Philippines total consumer expenditure is estimated to grow faster, by 5.8% in real terms on average per year, backed by the country s positive economic outlook; The share of non-discretionary spending (expenditure on food, non-alcoholic beverages and housing) out of total consumer spending stood at 54.5% in 2014, significantly higher than the average for Asia Pacific in the same year (41.0%). This was due to the Philippines relatively high cost of food, while generally reflecting the country s relatively low income levels. Over the

11 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 8 long term, the share of non-discretionary spending out of total consumer spending in the Philippines is forecast to decline gradually to 50.6% by 2030, as rising levels of disposable income allow households to allocate more resources to categories other than basic needs. Education, hotels and catering and leisure and recreation will be the fastest growing consumer expenditure categories in the Philippines: Over the period, the Philippines best performing category was health goods and medical services (registering a 41.3% increase in real terms during this period), followed by miscellaneous goods and services (a 37.9% rise in real terms over the same period) and hotels and catering (32.7%). This is because Filipino consumers are willing to spend more for their health, while they tend to go out for dining more often as income increases; During the period of , education is forecast to emerge as the fastest growing consumer expenditure category, as Filipino parents are more willing to pay for private and/or extra tuition so that their children can realise the best education possible. Hotels and catering and leisure and recreation will be the second and third fastest growing category, driven by the country s youthful population and the rising trend of dining out and vacations more frequently; Chart 8 Real Growth Indices of Fastest Growing Consumer Spending Categories: Source: Euromonitor International from national statistics/un/oecd Note: Data are forecasts. Between 2009 and 2014, alcoholic beverages and tobacco and clothing and footwear were the categories showing the weakest performance, increasing by 8.8% and 9.4% in real terms respectively over this period. Growth in alcoholic beverages and tobacco spending has been affected by the government s higher sin taxes on alcoholic drinks since Meanwhile, growth in clothing and footwear spending has been subdued, due to factors like the widespread availability of cheap imported clothes and increasing price competition amongst clothing retailers; Over the period of , alcoholic beverages and tobacco and clothing and footwear will continue to be categories showing the slowest rate of expansion in the country, due to the

12 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 9 same reasons. Household goods and services is expected to be the third weakest performing category during the forecast period, partly due to the falling prices of household appliances. Chart 9 Real Growth Indices of Slowest Growing Consumer Spending Categories: Source: Note: Euromonitor International from national statistics/un/oecd Data are forecasts. CONSUMER EXPENDITURE BY REGION National Capital Region Has the Highest Purchasing Power Consumer spending in the Philippines concentrates in the country s capital region: Total consumer expenditure in the National Capital region, also known as Metro Manila, amounted to US$48.4 billion or 23.5% of the country s total consumer expenditure in 2014, up from US$30.3 billion in Being the Philippines economic hub and political centre, Metro Manila is also the second most populous region in the country. Combined with its high spending power, the region is certainly the most important market in the Philippines; By 2030, consumer expenditure in the National Capital region is forecast to reach US$235 billion, accounting for 22.7% of the country s total by that year. This will be driven by the region s solid economic growth and relatively high disposable income level. Other key markets in the Philippines will continue to be Calabarzon and Central Luzon, which will make up 20.6% and 12.9% of the country s total consumer expenditure by 2030 respectively. Chart 10 Total Consumer Expenditure by Region: 2014

13 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 10 Source: Euromonitor International from national statistics/un/oecd The National Capital region also features the highest per household consumer expenditure levels: As the seat of the government, as well as home to major industries and companies in the Philippines, the National Capital region often offers the highest-paid employment opportunities in the country. The region, therefore, had the highest levels of consumer spending per household across regions, at US$15,971 in The Philippines most populous region Calabarzon had the second highest levels of per household consumer expenditure, at US$11,932 in the same year; Meanwhile, the Autonomous in Muslim Mindanao region posted the lowest levels of consumer spending, at U$4,992 in The region has a high poverty rate, while a long history of conflict has affected its socio-economic development. Chart 11 Per Household Consumer Expenditure by Region: 2014

14 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 11 Source: Euromonitor International from national statistics/un/oecd CONSUMER EXPENDITURE BY INCOME LEVEL Stark Differences in Spending Pattern Across Income Levels Spending levels among households in the Philippines are marked by the country s unequal income distribution: In 2014, the Philippines households in decile 10 spent 7.6 times as much as households in decile 1. In terms of annual disposable income, this factor was 25.3 in 2014, reflecting rich Filipino households capacity to save, while poor households generally have to spend the totality of their income. The categories showing the greatest difference in spending between deciles 10 and 1 were hotels and catering and leisure and recreation, where decile 10 spent 47.7 and 32.7 times as much as decile 1 respectively in 2014; All income deciles in the Philippines saw their per household consumer expenditure growing during the period. Consumer expenditure per household for decile 1 grew by 48.0% in US$ terms, the highest increase across all deciles. Meanwhile, decile 10 witnessed the slowest growth in consumer expenditure per household, at 40.6% in US$ terms between 2009 and This is mainly because wealthy households in the Philippines were more affected by the country s economic recession in 2009 and the global economic downturn, which resulted in lower profits on their assets and investments. In 2015, households in all income deciles are expected to record an increase in consumer expenditure in US$ terms. There are large differences in the spending patterns across income levels: In 2014, low-income households in decile 1 in the Philippines allocated 77.5% of their total expenditure to non-discretionary spending, compared to 60.8% for households in decile 5

15 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 12 (middle-income households) and 41.5% for households in decile 10 (high-income households); Compared to 2009, the proportion of non-discretionary spending for deciles 1 and 5 declined from 78.1% and 61.1% respectively in that year, owing to rising levels of per household disposable income for the two deciles during this period. The share of non-discretionary spending for decile 10, however, rose slightly from 41.0% in 2009 to 41.5% in 2014, as growth in decile 10 households disposable income was subdued during the period; Over the period of , the share of non-discretionary spending out of total consumer spending is forecast to decrease further, for decile 1 (from 77.2% to 74.1%), decile 5 (from 60.5% to 56.7%) and decile 10 (from 41.4% to 37.4%). Chart 12 Spending Patterns of Deciles 1, 5 and 10: 2014 Source: Euromonitor International from national statistical offices/oecd Note: A: Food and non-alcoholic beverages; B: Alcoholic beverages and tobacco; C: Clothing and footwear; D: Housing; E: Household goods and services; F: Health goods and medical services; G: Transport; H: Communications; I: Leisure and recreation; J: Education; K: Hotels and catering; L: Miscellaneous goods and services. The figure in brackets refers to the average disposable income of households in each decile. Decile 10 accounted for 22.5% of total consumer spending in the country in 2014: Hotels and catering is the most discretionary spending category in the Philippines, with households in decile 10 concentrating 35.9% of total category spending in Ranking next as the second most discretionary category was education, for which decile 10 represented 31.9% of total category spending respectively in 2014; On the other hand, the least discretionary spending categories (those to which deciles 1, 5 and 10 channel a broadly similar share of their spending) were food and non-alcoholic beverages (due to its status as a basic necessity) and alcoholic beverages and tobacco (reflecting widespread consumption of this category across income levels). Chart 13 Category Expenditure by Each Decile as a Proportion of Total Category Spending: 2014

16 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 13 Source: Euromonitor International from national statistical offices/oecd DEFINITIONS Deciles Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowest earning to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 1 refers to the lowest earning 10.0%, through to Decile 10, which refers to the highest earning 10.0% of households. Discretionary Spending Discretionary spending is the expenditure by consumers or households on all consumerspending categories other than the essentials of food and non-alcoholic beverages and housing. Disposable Income This is gross income minus social security contributions and income taxes. Gross Income Annual gross income refers to income before taxes and social security contributions from all sources including earnings from employment, investments, benefits and other sources such as remittances. Mean Income The mean income also referred to as the average income is the total or aggregate income divided by the number of households.

17 I N C O M E A N D E X P E N D I T U R E : P H I L I P P I N E S P a s s p o r t 14 Median Income The median income is the amount which divides the household income distribution into two equal groups, half having disposable income above that amount and half having income below that amount. Middle Class The middle class is defined as the number of households with between 75.0% and 125% of median income. Non-discretionary Spending Non-discretionary spending is the expenditure by consumers or households on the two essential categories of food and non-alcoholic beverages and housing. Social Class A Social Class A presents data referring to the number of individuals with a gross income over 200% of an average gross income of all individuals aged 15+. Social Class B Social Class B presents data referring to the number of individuals with a gross income between 150% and 200% of an average gross income of all individuals aged 15+. Social Class C Social Class C presents data referring to the number of individuals with a gross income between 100% and 150% of an average gross income of all individuals aged 15+. Social Class D Social Class D presents data referring to the number of individuals with a gross income between 50.0% and 100% of an average gross income of all individuals aged 15+. Social Class E Social Class E presents data referring to the number of individuals with a gross income less than 50.0% of an average gross income of all individuals aged 15+.