‘Consumer spending to pick up next year’

MANILA, Philippines — Consumer spending in the Philippines is expected to pick up further next year on the back of easing inflationary pressures and healthy employment, according to BMI Country Risk & Industry Research.

BMI said household spending is set to grow by 6.3 percent to P12.8 trillion in 2024, higher than the previous estimate of six percent to P12.7 trillion.

For this year, the research arm of the Fitch Group sees consumer spending growing by 5.5 percent to P12 trillion.

“We hold a positive outlook for consumer spending in the Philippines over 2024, as the economic recovery feeds through to strong real consumer spending growth over the year. Our consumer spending outlook will be more positive, relative to 2023, as economic growth persists and consumption level normalizes,” BMI said.

BMI said spending would be constrained by an environment of still elevated inflationary pressures as well as high debt levels, and its servicing costs.

However, it pointed out that easing inflation and a tight labor market would support spending, as real wage growth returns to positive territory, supporting purchasing power over the year.

According to BMI, its projected year-on-year growth in consumer spending in the Philippines in 2024 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.

It added that real private final consumption, as a percentage of gross domestic product (GDP) has been rising, to 76.1 percent of total GDP in 2024 from 75.3 percent of total GDP in 2021.

BMI said Inflation is likely to remain elevated relative to the two to four percent target set by the Bangko Sentral Ng Pilipinas (BSP).

The research unit sees inflation to mediate downwards and average four percent in 2024 from 6.1 percent in 2023. Inflation averaged 6.6 percent from January to September, well above the central bank target range, after quickening for two straight months to 5.3 percent in August and 6.1 percent in September from a year low of 4.7 percent in July.

“Elevated inflation will thus continue to be a risk to the forecast, with respect to consumer spending in the Philippines… The risk now is that inflation remains elevated at these levels for longer than anticipated, which will accelerate the erosion of household purchasing power,” BMI added.

“We expect the central bank to tighten monetary policy further to anchor inflation expectations, although we forecast inflation will continue to improve over 2024 and this will positively benefit the prospects for Filipino consumers,” BMI said.

It said the Philippine economy is heavily dependent on high employment, especially in the service industry.

Based on available data the country’s unemployment rate stood at 4.4 percent in August, higher than the 4.2 percent booked in 2022.

“Over 2024, we forecast unemployment to average 6.3 percent, as the labor market loosens slightly. In addition, while inflation continues to increase, the main drivers are elevated food and energy costs as opposed to wages,” BMI said.