Income and Expenditure Philippines

7/24/2019 Income and Expenditure Philippines

1/17

INCOME AND EXPENDITURE:

PHILIPPINES

Euromonitor International

March 2015


2/17

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 I

E u r o m o n i t o r I n t e r n a t i o n a l

LIST OF CONTENTS AND TABLES

Chart 1 SWOT Analysis: Philippines ......................................................... ................ 1

Chart 2 Overview of Income and Consumer Expenditure in the Philippines:2014 ............................................................. ................................................ 1

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 2030 ............... 3Chart 4 Total Gross Income: 2014 ............................................................................ 3

Social Class Composition ............................................................. ................................................ 4

Low-income Earners Are the Majority ............................................................ ........................... 4

Chart 5 Age Composition of Social Classes ABCDE: 2014 ...................................... 5

Household Income Distribution ................................................................ ..................................... 5

High Level of Income Inequality ........................................................... ..................................... 5

Chart 6 Average Household Annual Disposable Income by Decile: 2014 and2030 ............................................................. ................................................ 6

Chart 7 Household Income Distribution: 2014........................................................... 6

Consumer Expenditure by Category ............................................................................................ 7

Education Spending Will Grow the Fastest ............................................................... ................ 7

Chart 8 Real Growth Indices of Fastest Growing Consumer SpendingCategories: 2015-2030 ................................................................. ................ 8

Chart 9 Real Growth Indices of Slowest Growing Consumer SpendingCategories: 2015-2030 ................................................................. ................ 9

Consumer Expenditure by Region ........................................................... ..................................... 9

National Capital Region Has the Highest Purchasing Power .................................................... 9Chart 10 Total Consumer Expenditure by Region: 2014 ............................................. 9

Chart 11 Per Household Consumer Expenditure by Region: 2014 ........................... 10

Consumer Expenditure by Income Level ........................................................... ......................... 11

Stark Differences in Spending Pattern Across Income Levels ................................................ 11

Chart 12 Spending Patterns of Deciles 1, 5 and 10: 2014 ........................................ 12Chart 13 Category Expenditure by Each Decile as a Proportion of Total

Category Spending: 2014 .......................................................................... 12

Definitions ............................................................... ................................................................. ... 13

Deciles ..................................................... ................................................................. .............. 13Discretionary Spending ............................................................. .............................................. 13

Disposable Income ................................................................................................................. 13Gross Income ......................................................................................................................... 13Mean Income ...................................................... ................................................................. ... 13Median Income ......................................................................................................... .............. 14Middle Class ........................................................................................................................... 14Non-discretionary Spending ................................................................................................... 14Social Class A ........................................................................................................................ 14Social Class B ........................................................................................................................ 14Social Class C ........................................................................................................................ 14Social Class D ........................................................................................................................ 14


3/17

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 II


Social Class E ........................................................................................................................ 14


4/17

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 1


INCOME AND EXPENDITURE:PHILIPPINES

Growth in consumer income and expenditure in the Philippines is expected to accelerate inthe medium and long term, backed by the countrys stable economic growth, youthful populat ion

and rising middle class. However, income inequality and poverty remain relatively high, resulting

in stark divergence in spending patterns and hindering the markets 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


5/17



Source: Euromonitor International from national statistics

GROSS INCOME BY AGE

Growth in Per Capita Annual Gross Income To Accelerate in the Mediumand 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 2009. 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 countrys sharp economic slowdown in 2009 amidst the

global financial crisis of 2008-2009.

Over the forecast period of 2015-2030, 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 countrys 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 2009-2014 period.

The age group 35-39 is the most prominent amongst the countrys top income earners:

In 2014, those aged 35-39 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 30-34 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;


6/17



By 2030, the age bands of 35-39 and 30-34 will still account for the largest share of the

Philippines top income earners, at 19.6% and 19.3% respectively. This wil l be driven by the

countrys economic growth and an expansion of the private sector, which will continue

creating attractive business and employment opportunities for the population during the 2015-

2030 period. The age group 65+, however, will witness the largest gain in the share of thehighest income earners in the Philippines, from 0.9% in 2015 to 1.4% by 2030. 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 statisticsNote: Data for 2030 are forecasts.

The Philippines youthful population is a key determinant of the countrys 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 15-29 represented 28.0% of the

countrys total population.

Chart 4 Total Gross Income: 2014


7/17



Source: Euromonitor International from national statisticsNote: 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 countrys high level of

income inequality:

Social class E (low-income earners) is the largest in the Philippines, representing 42.0% of

the countrys population aged 15+ in 2014. 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 countrys 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

countrys mainly young population and higher unemployment rates for the youth;


8/17



Social class E is expected to remain as the dominant social class in the Philippines by 2030,

representing 40.7% of the countrys population aged 15+ by that year. The age group 15 -19

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


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 2009-2014 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

2014. The overall increase during the period was 11.7%, backed by the countrys strong

economic recovery since 2010;

For the forecast period of 2015-2030, 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 anoverall 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

countrys 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;


9/17



During the 2009-2014 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 governments priorit ies.

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 2014. 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 statisticsNote: 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 countrys

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


10/17




In 2014, the Philippines middle class composed of households with an income between

75.0% and 125% of median incometotalled 5.4 million households, an 11.1% increase over

its 2009 levels, as a result of the countrys economic growth and the governments income

redistribution programme. As a percentage of the countrys total number of households,

however, the countrys 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 2015-

2030, with the number of middle class households forecast to reach 7.9 million (equivalent to

24.9% of the total) by 2030. 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 2014. The expansion was supported byrising per household disposable income levels, coupled with growing remittances inflows and

positive consumer confidence on the back of the countrys strong economic performance. For

the forecast period of 2015-2030, the Philippines total consumer expenditure is estimated to

grow faster, by 5.8% in real terms on average per year, backed by the countrys 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 countrys relatively low income levels. Over the


11/17



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 2009-2014 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 2015-2030, 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

countrys youthful population and the rising trend of dining out and vacations more frequently;

Chart 8 Real Growth Indices of Fastest Growing Consumer Spending Categories:2015-2030

Source: Euromonitor International from national statistics/UN/OECDNote: 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 governments higher sin taxes on alcohol ic drinks since 2013. 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 2015-2030, 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


12/17



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:

2015-2030

Source: Euromonitor International from national statistics/UN/OECDNote: Data are forecasts.

CONSUMER EXPENDITURE BY REGION

National Capital Region Has the Highest Purchasing Power

Consumer spending in the Philippines concentrates in the countrys 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 countrys total consumer expenditure in 20 14, up

from US$30.3 billion in 2009. 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 countrys total by that year. This will be driven by the

regions solid economic growth and relatively high disposable income level. Other keymarkets in the Philippines will continue to be Calabarzon and Central Luzon, which will make

up 20.6% and 12.9% of the countrys total consumer expenditure by 2030 respectively.

Chart 10 Total Consumer Expenditure by Region: 2014


13/17



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 2014. 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 2014. 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


14/17



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 countrys 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 2009-2014 period. Consumer expenditure per household for decile 1 grew by

48.0% in US$ terms, the highest increase across all deciles. Meanwhile, decile 10 witnessedthe slowest growth in consumer expenditure per household, at 40.6% in US$ terms between

2009 and 2014. This is mainly because wealthy households in the Philippines were more

affected by the countrys 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


15/17



(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-discretionaryspending 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 2015-2030, 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/OECDNote: 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 disposableincome 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 2014. 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 CategorySpending: 2014


16/17



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 consumer-

spending 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 IncomeAnnual 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 incomealso referred to as the average incomeis the total or aggregate income

divided by the number of households.


17/17


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+.

Documents

Income and Expenditure Philippines