The upcoming wage increase in Metro Manila is unlikely to significantly boost the economy, as rising living costs could prompt consumers to save much of the extra income rather than spend it, the Australia and New Zealand Banking Group Ltd. (ANZ) said.
In a report, ANZ Research stated that the wage increase would have a ‘limited’ impact on consumer spending. They emphasized that a broader recovery in government infrastructure spending is necessary to revive weakening household consumption.
Starting Sept. 26, minimum wage earners in the National Capital Region will receive a P60 daily increase, the Department of Labor and Employment said. The adjustment will raise the minimum wage for nonagricultural workers to P755 from P695, while agricultural workers will also receive a P60 increase.
The increase comes as lawmakers raise concerns about the fate of a separate wage order that would have granted a larger P85 daily increase.
A regional trial court issued a temporary restraining order that halted that adjustment.
‘Even if wages pick up, Filipino consumers are unlikely to raise spending proportionately and will likely prefer to save amid heightened uncertainty,’ ANZ said.
The bank’s outlook underscores the growing challenges facing an economy that expanded just 2.6 percent in the first half, as higher energy costs and a confidence slump linked to a major corruption scandal weighed on activity.
Meanwhile, ANZ said it expects gross domestic product to expand 3.5 percent this year, lower than its previous estimate of 3.9 percent. The lender noted that government capital expenditure has remained deep in contractionary territory amid higher scrutiny on budget disbursement.
At the same time, the sluggish state spending, in turn, is not helping revive weak consumer sentiment. ANZ said the softer growth environment is already beginning to weigh on the labor market, while remittances–a key source of purchasing power for households–have slowed markedly this year.
This comes while inflation remains elevated, with ANZ expecting the Bangko Sentral ng Pilipinas (BSP) to deliver another quarter-point rate hike in the fourth quarter in response to risks from a severe El Niño episode.
Even so, exports, a key contributor to second-quarter growth, could be a bright spot.
‘Export prospects remain favorable, supported by sustained demand for electronics amid the ongoing AI cycle,’ ANZ said. ‘However, they will be the sole contributor to growth in the near term.’