Confidence is Key: A Study on Consumer Confidence and its Potential in the Recovering Philippine Economy

Abstract

The Coronavirus Disease 2019 (COVID-19) Pandemic has caused major damage to the Philippine economy, resulting in a drastic -17.0% drop in aggregate output since 2019 and a downturned economy that could be felt by 2021. The impact of the pandemic could be felt at a household level, as 1.8 million Filipino families report to have become newly poor within the last 1 to 4 years, in addition to 17.6 million pre-existing families below the poverty threshold in 2018. The Philippine citizens and their government are hoping for economic recovery soon. This study provides an in-depth multivariate analysis of the role of selected monetary indicators and labor and commerce indicators in the consumer confidence of the general Philippine population using multi-variate regression and vector autoregression analyses. It also establishes a causal relationship of the latter to HFCE and GDP using the Granger causality test to determine which indicators affect general consumption the most in the context of recovery from the COVID Pandemic. The paper has successfully confirmed the significance of consumer confidence in the fluctuations of the Philippine economy in the short- and long-run, as well as systematically illustrates the relationship of consumer confidence with other macroeconomic variables. As the model shows, consumer confidence is heavily influenced by the country’s economic stability and the individual’s level of income, purchasing power, access to financial instruments, and ability to borrow.