HOUSEHOLD spending in the Philippines is forecast to expand 6.3% in 2024 with inflation easing and economic growth remaining robust, BMI Country Risk and Industry Research said.
In a report dated Nov. 3, BMI said it expects the sustained economic recovery to feed through to strong consumer spending.
In its previous consumer outlook report in August, BMI said Philippine household consumption will grow 5.5% this year.
“Our consumer spending outlook will be more positive, relative to 2023, as economic growth persists, and consumption levels normalizes. Easing inflationary pressures and healthy employment will form the base for stable consumer spending,” according to BMI, a unit of Fitch Solutions.
Private consumption, which typically accounts for three-fourths of the Philippine economy, rose 5.5% in the second quarter, slackening from the 6.4% growth posted in the first quarter and the 8.5% reading a year earlier.
This was the slowest household spending growth reading since the 4.8% contraction in the first quarter of 2021.
BMI said its forecast for household consumption in 2024 is in line with its projections that the economy will grow 6.2% next year, from 5.3% in 2023.
Economic growth likely picked up in the third quarter. A BusinessWorld poll of 18 economists and analysts last week yielded a median gross domestic product (GDP) growth estimate of 4.9% for the three months to September, against the 4.3% posted in the second quarter.
If realized, this would bring the nine-month average GDP expansion to 5.2%, still below the government’s 6%-7% full-year target. Authorities will release third-quarter GDP data on Nov. 9, Thursday.
Meanwhile, inflation is expected to decline to 4% in 2024 from a likely 6.1% average this year, BMI said.
“The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power,” it said.
BMI sees inflation easing to 3.2% in 2025.
The Bangko Sentral ng Pilipinas (BSP) expects full-year inflation to come in at 5.8% in 2023, before easing to 3.5% in 2024 and 3.4% in 2025. Officials have said the BSP could revise its inflation forecasts on Nov. 16 to account for October inflation data.
Headline inflation likely eased to 5.7% in October from 6.1% in September, a separate BusinessWorld poll indicated. If realized, October inflation would weaken from the 7.7% reading from a year earlier. It would also be the lowest rate since the 5.3% posted in August.
However, October would still mark the 19th straight month inflation exceeded the central bank’s 2-4% target band. The Philippine Statistics Agency will release October inflation data today, Tuesday.
“High levels of household debt remain a risk to our consumer outlook, as it limits the future availability of debt, but also draws on current disposable income levels, especially as debt servicing costs increase on the back of interest rate increases,” BMI said.
The BSP raised borrowing costs by 450 basis points between May 2022 and October. This has brought the key interest rate at 6.5%, the highest in 16 years.
BMI also said remittances from overseas Filipino workers (OFWs) will continue to be an important source of funding for many households in the Philippines, with demand for OFWs increasing globally.
“In particular, there is demand for Filipino workers skilled in jobs related to medical and health services, construction and housekeeping,” BMI said.
The BSP reported that cash remittances coursed through banks rose 2.7% year on year to $2.79 billion in August, the highest rate of growth since the 2.8% posted in May.
“However, we do highlight several risks to this income over 2023, mostly related to the negative impact from the rising inflation across several global markets,” it said.
“In addition, the possible weakening of the peso will reduce the amounts sent back by overseas workers in local currency. This could put pressure on households with fixed expenditures,” it added. — Keisha B. Ta-asan