- More Filipino consumers intend to buy cars in the first half of the year, the latest FTCR survey of purchasing intentions shows. FTCR believes this is driven by rising incomes and cheap credit.
- Delays in infrastructure spending earmarked to improve public transport are pushing auto sales to record highs.
- Plans to increase the country’s automobile tax are not expected to dent demand this year as legislation will take time to be implemented.
FT Confidential Research’s fourth-quarter 2016 survey suggests demand for cars in the Philippines is set to strengthen further in the first half of this year. Our Auto Purchase Index, which tracks the car-buying intentions of 1,000 Filipino respondents over the next two quarters, rose 4.4 points quarter on quarter to 29.5 — the highest reading since the data were first published in 2013 (see chart).
We think rising demand is being fuelled by growing incomes and access to cheap credit, amid delays in infrastructure spending across the Philippines.
Rising incomes, cheap loans, more cars
Incomes across the Philippines have improved markedly for the past seven years, with GDP rising an average of 6.3 per cent during the period. It capped 2016 with an expansion of 6.8 per cent, pulling joblessness down to a decade-low rate of 4.7 per cent in October. This high growth is set to continue this year, with the government setting a target of 6.5-7.5 per cent.
Furthermore, Philippine banks have kept car financing affordable. This has helped auto loan growth for the past six years (see chart). Indeed, the Future Consumer Borrowing Index — which gauges respondents’ general borrowing intentions in the next two quarters — rose 0.3 quarter on quarter to 62 points in the final quarter of 2016.
Potential increases in borrowing costs this year may not hurt car demand noticeably, as income is expected to continue growing as well. Annual inflation crept up to 2.6 per cent in December from a year low of 0.9 per cent in February, largely due to rises in food and fuel prices. But for the whole of 2016 inflation only averaged 1.8 per cent, well below the central bank’s 2-4 per cent target. This likely gives space for the Bangko Sentral ng Pilipinas (BSP) — the central bank — to go slow on rate hikes this year.
Infrastructure spending unlikely to improve public transport soon
President Rodrigo Duterte has promised to spend 860bn pesos ($17.3bn) on infrastructure this year after the previous Aquino administration failed to hit ambitious spending targets. While this represents a fast-tracking of the country’s infrastructure programme, public transport is unlikely to improve until early 2018 due to weather-driven disruption and delays in obtaining emergency powers from Congress that are, on paper, designed to speed up procurement. All of this is expected to encourage more Filipinos to buy cars this year (see chart).
Looming car tax unlikely to affect demand soon
The administration is also considering a rise in taxes on automobiles to slow the rate at which cars are being put on the roads, as part of a larger tax reform effort. Fierce industry opposition and the likelihood of contentious legislative discussions is expected to prevent the measure being passed into law within the year. So it is unlikely to affect auto demand until next year.
| FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors. |
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