CONSUMER spending will likely pick up next year due to factors such as higher economic growth, a steady jobless rate, and easing inflation, a Fitch Group unit said.
“Our forecast for year-on-year growth in consumer spending in the Philippines over 2024 is in line with our country risk team’s forecast that the economy will grow by a real rate of 6.2 percent year on year over the year,” BMI Country Risk & Industry Research said in a November 3 commentary.
The Fitch unit noted that consumer confidence, while still negative, had improved to its highest reading since the second quarter of last year to -9.6 in the third quarter of 2023.
“The rising consumer optimism is fuelled by a more favorable job market with more jobs and permanent employment, as well as higher incomes and remittances,” it said.
Household spending was forecast to expand by 6.3 percent next year, equivalent to P12.8 trillion at 2010 prices, with purchasing power to be supported by real wage growth. The Fitch unit’s 2023 projection, in comparison, is that of 5.5 percent year-on-year growth to P12 trillion.
As a percentage of gross domestic product, real private final consumption was forecast to rise to 76.1 percent next year from 75.3 percent in 2021.
The economy is expected to grow by 6.2 percent next year, up from 5.3 percent in 2023, while unemployment Is projected to stay steady at 6.3 percent. Inflation, meanwhile, was forecast to slow to 4.0 percent in 2024 from 6.1 percent this year.
Spending could be constrained by a weaker peso, however, which BMI said would likely depreciate to P56.80 against the dollar next year from P55.60 in 2023.
“For the Philippines, which remains heavily reliant on imports to meet local demand, this will provide further headwinds as imports will become costlier,” it added.
Still, given likely economic growth and inflation gains, BMI said, “We believe this backdrop will significantly mean that consumer spending over 2024 will remain stable.”
Inflation also remains a risk to the spending outlook and the Fitch unit said that if the rate stayed at the 4.0-percent level “for longer than anticipated,” the impact on household purchasing power could worsen.
As for the peso, a weakening could lead to reduced remittances, putting pressure on households with fixed expenditures.
High household debt levels were also flagged. While central banks could start cutting rates next year, these are not expected to fall to pre-2022 lows, “meaning that customers and households will need to adjust to higher interest rates for the foreseeable future.”
“[T]he risk to consumer spending is that the cost of servicing this debt (taken on during a low interest rate environment) at higher interest rates becomes a larger than anticipated draw on disposable incomes, to a point where consumers have to cut back spending, especially in more non-essential segments,” BMI said.
Other challenges to the spending outlook include sticky prices, negative wealth effects from weaker property and share prices, an uptick in employment due to the global economic slowdown, and the continued impact of the Russia-Ukraine war.
In all, BMI said that “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 levels normalize,” it added.
“Easing inflationary pressures and healthy employment will form the base for stable consumer spending. Risks to this outlook would be higher than anticipated inflation and more aggressive economic weakness, which will weigh heavier on household purchasing power.