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Young adults have higher financial literacy compared to other age groups, highlighting the need to educate more individuals and households across different ages, economic classes, and levels of educational attainment to allow them to be financially resilient and improve overall welfare, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper.

The paper said young adults “display higher financial literacy than the middle-aged and senior cohorts.”

“Looking at the financial literacy index (FLI) scores for different demographic and economic factors and categories, we find that among the age cohorts, the young adult group recorded the highest financial literacy,” it said.

“We found that age and the life cycle matter in people’s financial behavior. Depending on the life stage they are in, people tend to exhibit more short-term or long-term behaviors,” it added.

The BSP’s 2021 Financial Inclusion Survey showed that only 2% percent of Filipinos were able to correctly answer all the six basic financial literacy questions.

“Equipping individuals and households with the necessary knowledge, skills, and ability to make informed financial decisions is crucial in ensuring their financial resilience and well-being. These, in turn, would lead to higher overall welfare,” the paper said.

“At the macro level, financial literacy can contribute to a more efficient allocation of financial resources in the economy and to greater financial stability. Financial literacy is also considered an essential component of financial inclusion.”

The study showed females have “slightly lower financial aptitude and overall financial literacy” versus males.

“Income and education are both positively related to financial literacy with the latter having a higher coefficient indicating that respondents with at least high school education have higher financial knowledge and skills,” it added.

The study showed that those with higher financial literacy are “less likely to spend less than or equal to their income.”

“Middle-aged individuals and senior age persons likewise appear to be less likely to spend within their income compared to young adults.”

Those with better financial aptitude scores are more likely to pay their loans on time, the paper said.

“Middle-aged persons are also less likely to have a loan- to-income ratio of less than one compared to the young adult group… In terms of loan payment, individuals with higher financial attitude scores are more likely to pay on time,” it added.

It was also found that individuals that are likely to have retirement or pension plans were those with higher financial aptitude and are middle-aged or seniors.

“Additionally, they are more likely to have insurance and other plans… We observe that many Filipino adults engage in savings, borrowing, and investment activities, but only a small number have pension plans and savings. These are also mostly the mandatory retirement plans for public and private sector employees,” it added.

The paper found there is still a need to enhance current financial education programs.

“Designing financial programs and interventions that aim at increasing financial literacy is important for developing and reinforcing positive financial behaviors. In the Philippines, significant strides have been made towards increasing and improving financial education,” it said.

“Given that the Philippines’ demographic is shifting toward an aging population, there is a need to increase and intensify financial education programs emphasizing retirement planning and saving. These programs could help Filipino adults remain financially resilient even in their retirement years.” — L.M.J.C. Jocson

The Philippines will continue to post large deficits for the current account and budget this year due to an expected increase in rice imports and infrastructure spending, Nomura Global Markets Research said.

“We expect the current account deficit (CAD) to remain large and fiscal consolidation targets to be challenging this year,” it said in a report.

“In our view, prioritization of infrastructure projects under the ‘Build Better More’ program and a substantial reduction of rice import tariffs will result in the current account deficit remaining large, make fiscal consolidation more challenging and could imply persistence in currency weakness.”

The government is aiming to spend 5-6% of gross domestic product (GDP) on infrastructure annually. The Marcos administration has approved 185 infrastructure flagship projects valued at PHP 9.55 trillion.

“The upshot is a still-large CAD, which we forecast at 2.7% of GDP in 2024, well above the pre-pandemic (2016-2019) average of 1.1% and reflecting, in part, rising capital goods and raw materials imports due to infrastructure implementation,” Nomura said.

The central bank projects a USD 4.7-billion current account deficit for 2024, equivalent to 1% of GDP.

The current account deficit stood at USD 1.7 billion in the first quarter, equivalent to 1.6% of GDP.

Meanwhile, Nomura also sees the National Government’s (NG) fiscal deficit reaching 5.9% of GDP this year. This is slightly higher than the government’s deficit ceiling of 5.6% of GDP, equivalent to PHP 1.48 trillion.

Nomura said its higher deficit-to-GDP forecast is due to the Philippine government’s “challenging” fiscal targets.

“Our recent discussions with officials suggest the risk of a repeat of last year’s underspending is low, thanks to catch-up plans and recent budget reforms,” it added.

Latest data from the Treasury showed that the NG’s budget deficit in the January-May period widened by 24.06% to PHP 404.8 billion.

The Budget department last month tasked underspending government agencies to submit “catch-up plans” to address low budget utilization.

Meanwhile, Nomura said that the recent reduction in rice import tariffs will also contribute to the twin deficits.

“Food importation will remain a recourse of the government to increase domestic supply amid continued weather-related risks and now likely higher rice import demand due to lower tariffs,” it said.

President Ferdinand R. Marcos, Jr. last month signed Executive Order No. 62, which slashed tariffs on rice imports to 15% from 35% previously, until 2028.

The Department of Agriculture expects rice imports to hit 3.9 million metric tons (MMT) this year, while the US Department of Agriculture expects imports to reach 4.6 MMT.

“The tariff cut also implies some forgone fiscal revenues of about 0.05% of GDP, by our estimates,” Nomura said.

The Finance department earlier estimated that foregone revenues from the tariff cut could reach up to P22 billion.

Due to the tariff cut, Nomura also cut its inflation forecast to 2.8% this year from 3.7% previously. The BSP expects full-year inflation to settle at 3.3%.

The government’s efforts to ramp up infrastructure spending as well as the recent tariff cut may also lead to “persistent foreign exchange (FX) weakness.”

“Relatively large twin deficits under BSP’s flexible market-determined FX regime could imply persistence in currency weakness,” it added.

The peso closed at P58.795 against the dollar on Tuesday, weakening by 14.5 centavos from its P58.65 finish on Monday.

The peso has been trading at the P58-per-dollar level since May. — Luisa Maria Jacinta C. Jocson

The Regional Tripartite Wages and Productivity Board (RTWPB) has approved a PHP 35 minimum wage hike for workers in the National Capital Region (NCR), which will take effect on July 17.

According to Wage Order No. NCR-25, the minimum daily wage for nonagricultural workers in the region will be increased to PHP 645.

For workers in agriculture and service/retail establishments employing 15 workers or fewer, daily wages will be raised to P608 from PHP 573.

Workers in manufacturing establishments regularly employing fewer than 10 will also receive a minimum daily wage of P608.

The RTWPB-NCR approved the order on June 27, but a copy was released only on Monday.

“The wage order is to take effect after 15 days from its publication, or on July 17, 2024 which is exactly a day after the anniversary of the preceding wage order,” the Department of Labor and Employment (DoLE) said in a statement.

A P40 minimum wage increase was implemented in NCR on July 16, 2023.

The DoLE said the new wage rates are about 5.7% higher than the prevailing daily minimum wage rates in the region.

“(The new rates) remain above the latest regional poverty threshold for a family of five. These likewise result in a comparable 5% increase in wage-related benefits covering 13^th month pay, service incentive leave, and social security benefits,” it said.

The wage order will directly impact 988,243 minimum wage earners in the capital region, DoLE said.

About 1.7 million full-time wage and salary workers that earn above minimum wage “may also indirectly benefit as a result of upward adjustments at the enterprise level arising from the correction of wage distortion,” it added.

Retail and service establishments with not more than 10 regular workers and enterprises affected by natural calamities or disasters can apply for exemption from the wage hike. Barangay Micro Business Enterprise are also not covered by the minimum wage law.

Employers Confederation of the Philippines (ECoP) Governor Arturo “Butch” C. Guerrero III told BusinessWorld via iMessage that the PHP 35 wage increase is a “relief” for employers.

“This is a relief compared with the P750 wage hike per day the labor groups are recommending to the wage board and with the PHP 150 per day additional to [Senator Juan Miguel F.] Zubiri’s legislated wage increase in the Senate,” he said.

Philippine Chamber of Commerce and Industry (PCCI) Chairman George T. Barcelon in a phone call with BusinessWorld said the P35 wage hike is “very reasonable.”

“[A] P35 increase per day is a win-win [because] this is more affordable for the micro, small, and medium enterprises, for the small business establishment to continue doing their business,” he said. “At the same time, this also indirectly mitigates inflation.”

The Philippines has been battling persistent inflation, as the cost of food, transport and utilities continue to rise.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort warned about second-round inflation effects arising from the wage hike.

“Some pickup in inflation through higher prices of affected goods or services, or the so-called second-round inflation effects, as the wage increase is around +5.7% that could [be] passed by some businesses and industries in terms of higher prices of their products by a similar extent to reflect the increase in labor, production and input costs,” he said in a Viber message to BusinessWorld.

However, he noted some companies might absorb the higher costs, which will result in smaller profit margins.

Mr. Ricafort said the PHP 35 increase in wages would still “somewhat help” workers cope with expenses.

However, labor groups were not happy with the RTWPB-NCR’s order, saying it was not enough to help workers cope with the rising cost of living.

“The PHP 35 wage hike in Metro Manila is not only inadequate but also seems like a tactic to distract workers from their escalating push for a PHP 150 daily wage increase through legislation,” Federation of Free Workers President Jose Sonny G. Matula said in a statement.

“This highly insufficient increase, however, will only strengthen our resolve to pursue a legislated wage hike. The current economic conditions demand a comprehensive solution that addresses the dire financial realities workers face nationwide,” he added.

Trade Union Congress of the Philippines (TUCP) Vice-President Luis Manuel C. Corral said in a statement that the NCR wage board “opted to protect business profits rather than the bigger societal purpose of the wage increase.”

“As TUCP has repeatedly pointed out, the need to elevate the daily wage above the poverty threshold to afford a family of five at least one nutritious meal a day is inextricably linked to addressing the growing problem of stunting Filipino children due to persistent poverty and inequality,” he said.

The National Wage Coalition, which had sought a wage hike of not less than PHP 150, said the PHP 35 wage hike shows a “heartless disregard for the economic crises faced by our workers and families.”

“Our minimum wages do not amount to liveable wages… The P35 increase does not even amount to measly change; it is not even sufficient for a kilo of rice,” it said in a statement.

The NCR wage board had received several wage petitions from labor groups ranging from PHP 597 to PHP 750.

Unity for Wage Increase Now sought a PHP 597 increase in daily wages, while four hospital employee associations and the Pasig Labor Alliance for Democracy and Development sought a PHP 750 hike.

In February, the Senate approved on third and final reading a PHP 100 across-the-board minimum wage increase for workers in the private sector. The House of Representatives has yet to pass similar legislation.

Philippine manufacturing activity in June expanded at its slowest pace in three months amid cooling demand, S&P Global said.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI), which measures the country’s monthly factory performance, stood at 51.3 in June, slightly lower than the 51.9 reading in May.

June was the 10^th consecutive month that PMI was above the 50 mark, which signals an improvement in operating conditions from the previous month. A reading below 50 indicates the opposite.

“While strong improvements in demand trends earlier in the second quarter allowed manufacturing firms to raise their production volumes at a solid and sustained rate in June, the recent cooling in demand conditions could mean weaker upticks in output as we move into the second half of the year,” S&P Global Market Intelligence economist Maryam Baluch said in a report.

The Philippines’ PMI reading was the third fastest among six Association of Southeast Asian Nations (ASEAN) member countries in June and lower than the ASEAN average of 51.7.

The Philippines was behind Vietnam (54.7) and Thailand (51.7), but ahead of Myanmar and Indonesia (50.7). Malaysia saw a slight contraction (49.9) in June.

The headline PMI measures manufacturing conditions through the weighted average of five indices — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

S&P Global said Philippine manufacturers saw solid growth in production in June, the fastest in six months.

However, manufacturing firms saw “a notable cooldown” in growth in new orders. It noted the growth in foreign orders for Filipino-made goods weakened to a three-month low.

Cooling demand allowed manufacturers to address backlogs at the fastest pace in three months, S&P Global said.

It said manufacturing firms increased purchasing activity at the fastest pace since July 2023 in anticipation of rising production volume in the next few months.

“While growth in output fed through to higher purchasing activity, it failed to translate into job creation. The second consecutive month of job shedding reflected the lack of pressure on operating capacity within the sector, as backlogs were depleted sharply,” Ms. Baluch said.

S&P Global noted firms reduced workforce numbers in June due to rising spare capacity.

“June data also signaled a renewed rise in cost burdens, following a slight decrease in May. The rate of input price inflation was the strongest since February amid reports of raw material shortages, but nonetheless remained softer than the series average,” it said, noting this prompted firms to raise prices.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said manufacturing’s continued expansion is “a bright spot for the economy, as partly reflected by the pickup in both exports and imports in recent months, especially electronics.”

“Lower Fed and local interest rates would help reduce borrowing costs and help spur greater demand for loans by some manufacturers,” Mr. Ricafort said.

Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said the government should keep a close eye on factory activity if it posts a decline for the rest of the year.

“Government should look at whether the three-month low was due to elevated electricity prices in the past three months, or whether global firms are starting to look to other economies to deliver on various orders,” he said in a Viber message.

S&P Global said Philippine manufacturers maintained a positive outlook for production in the next 12 months, although weaker than May’s recent high.

“Future expectations also retreated, further alluding to softening sentiment in the outlook. However, inflationary pressures remained in check, despite a renewed rise in operating costs. Relatively soft and subdued upticks in costs and charges could help the sector generate demand in the coming months,” Ms. Baluch said. — Beatriz Marie D. Cruz