Consumption seen to remain under pressure

MANILA, Philippines — Consumption, a key driver of the country’s economic growth, is expected to be challenged this year even with easing inflation, according to UK-based think tank Pantheon Macroeconomics.

“Inflation is now cooling rapidly, but household spending is likely to remain under severe pressure this year,” Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco and senior Asia economist Moorthy Krshnan said in a report yesterday.

The think tank estimates that household savings have declined by a cumulative 15 percent from 2020 to 2022.

Chanco and Krshnan said the rebuilding of savings “appears to have made little-to-no headway, while the 2022 debt binge that helped to paper over these big cracks temporarily is unwinding at the margins.”

The Pantheon economists expect a continued slowdown in private consumption growth to 3.5 percent in the fourth quarter last year from the previous quarter’s five percent.

The private consumption growth in the third quarter was the lowest print since 2011, excluding the pandemic era damage.

The country’s headline inflation rate eased to 3.9 percent in December, its lowest level since February 2022, as utility and food prices posted lower growth.

Average inflation for 2023, however, was at six percent, higher than the 5.8 percent recorded in 2022 and above the Bangko Sentral ng Pilipinas’ two to four percent target range.

Private consumption is the largest component of the country’s economy.

With private consumption likely to have continued to moderate in the fourth quarter, the think tank expects the economy to have expanded at a slower pace of 4.8 percent in the last quarter of the year from 5.9 percent in the third quarter.

For full-year 2023, the think tank’s GDP growth forecast is at 5.4 percent, below the government’s six to seven percent target for last year.

The Philippine economy grew by 5.5 percent in the January to September period.

To achieve the low end of the government’s growth goal for 2023, Economic Planning Secretary Arsenio Balisacan earlier said the economy should post 7.2 percent growth in the fourth quarter.

Data on full-year 2023 and fourth quarter GDP growth will be released by the Philippine Statistics Authority tomorrow.