Strong consumer demand and economic expansion should drive further growth in the Philippine retail sector, assisted by increased bank lending and subdued inflation.

While downside risks remain -- such as a rise in global interest rates that could weaken the peso, curb capital flows to the Philippines and drive up inflation -- the bank expects these growth levels to be sustained over the next two years, at 6.9% in 2018 and 6.8% in 2019. 

Retail activity could also be supported by strong growth in bank lending. Data issued on May 31 by the Bangko Sentral ng Pilipinas (BSP) showed that while overall bank credit had expanded by 19.2% year on year in April, consumer loans increased by 24.3%. 

The first figure, though below the revised 24.5% increase posted in March, suggests continued high consumer demand and banks’ corresponding willingness to lend. The BSP report said increased lending for household consumption was due to expansion in credit card loans and salary-based, general-purpose loans. 

EMPLOYMENT UP
Another sign of rising momentum in retail came from employment portal Monster.com, which conducts monthly surveys of online hiring trends. 

According to a report issued at the end of May, retail posted the largest increase in online recruitment of any sector in April at 33% year on year, followed by business processing outsourcing at 27%. Both figures were far above the 7% year-on-year growth registered across the economy -- itself a rebound from a 3% decline in April 2016. 

Higher staff numbers suggest that businesses expect retail trade to improve further in the latter part of the year. 

SENTIMENT DROPS, INFLATION EASING
First-quarter data from the central bank showed consumer confidence up 8.7%, slightly below the 9.2% at end-2016 but still the second-strongest reading since the index began in 2007. 

Explaining the dip, survey respondents cited reasons ranging from concerns over poor agricultural harvests to price inflation for common household expenditures. 

The consumer confidence index could, however, soon rebound as inflation recedes -- according to the BSP the consumer price index fell from 3.4% in April to 3.1% in May.

Along with the drop in consumer confidence, the business outlook within retail and wholesale trade worsened slightly, as per the BSP’s latest business expectations survey released on May 26, falling from 42.8% in the final quarter of last year to 36.6% in the three months of this year. 

SPACE RACE
Another positive sign is sentiment in the retail property market, where demand for prime locations has stayed strong despite the expansion of available space.

According to a report for the first quarter of 2017 by real estate consultancy Pinnacle, the retail sector continues to be underserved, with consumer demand strong enough to support new projects to develop retail space.

This demand is reflected in development of new malls by large-scale retail operators as well as smaller shopping centers, according to Jojo Salas, director of research and consulting at Pinnacle. 

“Top commercial-retail developers are ever increasing their retail platforms and products,” he told local media on May 28.

Even with the rapid increase in retail space in many regions, the Pinnacle report found rents had remained steady, suggesting room for further expansion. 

A further increase in gross leasable area for retail is expected this year, with developers building on the existing stocks of 1.7 million square meters of leasable mall space as of the first quarter.