Philippine consumer spending may grow 5.5% this year — S&P

Consumer spending in the Philippines would probably grow by 5.5% this year, still below the pre-coronavirus pandemic level of 6%, because a recovery in household activity could take a few more quarters, S&P Global Ratings said on Tuesday.

In a report written by S&P economists Vishrut Rana and Louis Kuijs, the debt watcher said consumer confidence has dipped.

“We expect consumer activity to grow 5.5% in 2024, below the pre-pandemic trend growth of over 6%,” it said. “A recovery in consumer activity will take a few quarters to firm up.”

Economies across the world are experiencing a slowdown in household spending as central banks raised borrowing costs to tame red-hot inflation.

Last year, Philippine household consumption growth slowed to 5.6% from 8.3% in 2022. Private consumption accounts for about three-quarters of the economy, driven by restaurant and hotel spending.

The Philippine economy grew by 5.6% in 2023 falling short of the 6-7% target. It was also slower than the 7.6% expansion a year earlier.

“Consumers faced a challenging environment in 2023 as high inflation ate into purchasing power,” S&P Global said. “The weak external environment meant limited support from the economy outside of domestic demand.”

Inflation averaged 6% last year, the second straight year that it breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.

Jonathan Koh, an economist at Standard Chartered Bank, said consumer spending in the Philippines remained resilient.

“It appears that consumers were dipping into savings, and they were borrowing at the same time,” he told a news briefing.

Outstanding loans disbursed by big banks climbed by 7% to PHP 11.701 trillion at end-December, central bank data showed.

Consumer loans to residents went up by 23.6% year on year to PHP 1.27 trillion that month, driven by credit card loans (30%), motor vehicle loans (16.6%) and salary-based loans (9.4%).

“Some of those debt repayments will weigh on consumer spending,” Mr. Koh said. “Inflation risks will also probably weigh down on consumer spending.”

But robust labor market conditions and better employment in the Philippines would support household spending this year, as Filipino families try to repay their loans with higher salaries.

The country’s unemployment rate slowed to a record 4.3% in 2023 from 5.4% a year earlier, equivalent to 2.19 million jobless Filipinos compared with 2.67 million in 2022.

Mr. Koh said consumer spending would add 4.5 percentage points to the likely 6% economic growth this year.

Standard Chartered Bank expects the Philippines to grow by 6% this year from 5.6% in 2023, below the government’s 6.5-7.5% goal. — Keisha B. Ta-asan