Philippines Retail Report Q1 2013

The Philippines Retail Report examines the long-term potential of the local consumer market, but flagsshort-term concerns about how ongoing external weaknesses impact on the Philippines' economicoutlook.

The report examines how best to maximise returns in the Philippine retail market while minimisinginvestment risk. It also explores the impact of the emerging hard landing in China on the Philippineconsumer and on the ability of producers and exporters to realise returns in the short term.

The report also analyses the growth and risk management strategies being employed by the leadingplayers in the Philippine retail sector, as they seek to maximise growth opportunities offered by the localmarket.

The Philippines comes last in BMI's Asia Retail risk/reward ratings, although it outperforms slightly forrewards.

Among all retail categories, Mass Grocery Retail (MGR) will be the outperformer through to 2017 ingrowth terms, with sales forecast to increase by 41.5% between 2013 and 2017, from US$13.94bn toUS$19.72bn as domestic operators start modernising their outlets and increase the variety of products onoffer.

In the competitive arena, BMI sees upside potential in market liberalisation, which may encourage globalmultinationals to enter the country.

Over the last quarter, BMI has revised the following forecasts/views:

BMI has revised upwards its full-year 2012 private consumption growth outlook to 5.0% from4.3% as a result of the services sector's stronger-than-expected performance in Q112, bringingour full-year headline GDP forecast for 2012 from 3.9% previously to 4.2%. The Philippineeconomy expanded by 6.4% year-on-year in Q112, beating expectations with strong servicesgrowth of 8.5% amid an improving domestic outlook.

BMI has upgraded its private consumption forecast for 2012 to 5.0% from a previous forecast of4.3%. Private consumption contributed a strong 4.6pp to overall growth in Q112, expanding by6.6% y-o-y and reflecting the positive consumer story in the archipelago. Stoked by strong wagegrowth near 7.0%, remittance growth of 5.4% and dovish inflation expectations (we see inflationending the year at a moderate 3.4% versus its current rate of 3.0%), consumer confidenceimproved from -20.6% in Q411 to -14.7% in Q112.