Surge in consumer spending seen this year

MANILA, Philippines — Consumer spending in the Philippines is expected to surge this year due to easing inflationary pressures, healthy employment conditions and lower borrowing costs, according to BMI Country Risk & Industry Research.

In a report, BMI said household spending would likely grow by 6.4 percent to P12.7 trillion in 2024 from 5.1 percent last year. This is also higher than the previous estimate of 6.3 percent made in November 2023.

“We have a positive outlook for consumer spending in the Philippines in 2024. Easing inflationary pressures, a slightly favorable labor market and lower interest rates form the base for consumer spending growth,” BMI said.

However, the key risks to the outlook include persistent high inflation, lower remittance which may fluctuate amid external market conditions such as the peso depreciation, weaker economic growth as well as continued geopolitical tensions in the Middle East.

According to the research arm of the Fitch Group, the year-on-year growth projection in consumer spending is in line with its Country Risk team’s forecast that the economy would grow by a real rate of 6.2 percent over the year.

“A deteriorating external demand will likely be a drag on the Philippines’ gross domestic product (GDP). We are, however, positive on the private final consumption expenditure and expect it to grow by 4.7 percent, an acceleration versus the 4.1 percent growth in 2023,” it said.

BMI also said inflation would likely fall to 3.9 percent in 2024 from 6.3 percent last year, settling within the two to four percent target set by the Bangko Sentral Ng Pilipinas (BSP).

Inflation averaged 3.4 percent from January to April, well within the central bank’s target range, after quickening for three straight months to 3.4 percent in February, 3.7 percent in March and 3.8 percent in April from a three-year low of 2.8 percent in January.

MANILA, Philippines — Consumer spending in the Philippines is expected to surge this year due to easing inflationary pressures, healthy employment conditions and lower borrowing costs, according to BMI Country Risk & Industry Research.

In a report, BMI said household spending would likely grow by 6.4 percent to P12.7 trillion in 2024 from 5.1 percent last year. This is also higher than the previous estimate of 6.3 percent made in November 2023.

“We have a positive outlook for consumer spending in the Philippines in 2024. Easing inflationary pressures, a slightly favorable labor market and lower interest rates form the base for consumer spending growth,” BMI said.

However, the key risks to the outlook include persistent high inflation, lower remittance which may fluctuate amid external market conditions such as the peso depreciation, weaker economic growth as well as continued geopolitical tensions in the Middle East.

According to the research arm of the Fitch Group, the year-on-year growth projection in consumer spending is in line with its Country Risk team’s forecast that the economy would grow by a real rate of 6.2 percent over the year.

“A deteriorating external demand will likely be a drag on the Philippines’ gross domestic product (GDP). We are, however, positive on the private final consumption expenditure and expect it to grow by 4.7 percent, an acceleration versus the 4.1 percent growth in 2023,” it said.

BMI also said inflation would likely fall to 3.9 percent in 2024 from 6.3 percent last year, settling within the two to four percent target set by the Bangko Sentral Ng Pilipinas (BSP).

Inflation averaged 3.4 percent from January to April, well within the central bank’s target range, after quickening for three straight months to 3.4 percent in February, 3.7 percent in March and 3.8 percent in April from a three-year low of 2.8 percent in January.

However, BMI said inflation remains higher than pre-pandemic levels (2015-2019) when the average run rate of inflation was at 2.8 percent. This means that consumers must adapt to higher than usual inflation in the short term.

BMI also noted that if income growth does not keep up with inflation, consumers’ purchasing power may deteriorate which could drag their spending.

“While the BSP will likely be in a position to cut rates, we expect it to be a follower to the US Fed. Any delays in rate cuts in the US will directly impact the timing of rate cuts in the Philippines. This has implications on the outlook for peso,” BMI said.

The research firm forecasts the BSP’s key interest rate to fall to 5.75 percent by the end of this year.

After hiking policy rates by 450 basis points from May 2022 to October 2023, the BSP has kept the benchmark interest rate at a 17-year high of 6.50 percent to tame inflation.