Consumption recovery seen to fuel Philippine growth

A recovery in household consumption could drive Philippine gross domestic product (GDP) growth to the 6% range this year, HSBC Global Research said.

“We think household consumption in the Philippines should return, bit by bit, to its regular levels, bringing overall gross domestic product growth back to the range of 6% or more,” HSBC economist for ASEAN Aris D. Dacanay said in a report.

The Philippines’ GDP expanded by 5.2% in the third quarter, its weakest growth in five quarters. This brought the nine-month growth average to 5.8%.

The economy likely grew by 5.8% in the fourth quarter and 5.7% for the full-year 2024, according to a BusinessWorld poll of 18 economists last week. Fourth-quarter and full-year GDP data will be released today (Jan. 30).

The government is targeting 6-6.5% growth for 2024 and 6-8% for 2025 to 2026.

“Consumption should also be boosted over the near term with the recent depreciation in the Philippine peso against the US dollar boosting the purchasing power of every US dollar remitted.”

HSBC also cited a stronger recovery in non-durable consumer goods.

“Non-durable spending may be improving fast, but spending on big-ticket items, such as cars and real estate, will need more time to return to normal.”

“These goods are large expenditures by nature, potentially requiring households to acquire credit. To optimize one’s borrowing costs, households may be waiting for the central bank’s easing cycle to end before eventually deciding whether to borrow money or not.”

Mr. Dacanay said household consumption is unlikely to be affected by the Trump administration’s aggressive tariff policy.

“Remittances, demographics, and services exports — three sectors of the economy that drive consumption — are subject to minimal tariff risks, at best. So, to monitor the Philippine economy in 2025, watching household consumption will be key,” he said.

“The economy does have some layer of insulation; household consumption remains the country’s main growth driver, and no other economy can put a tariff on consumption.”

Markets are pricing in the impact of US President Donald J. Trump’s aggressive tariff proposals. He has pledged to impose tariffs of up to 60% on China, 25% on Canada and Mexico as well as a 10% universal tariff.

Mr. Trump also said he planned to slap tariffs on imported computer chips, pharmaceuticals and steel as part of efforts to encourage manufacturers to make these products in the US.

“With all the headlines on trade and tariffs, there is a sense of relief that the Philippines is the least affected in ASEAN (Association of Southeast Asian Nations),” Mr. Dacanay added.

HSBC noted that household consumption has slowed amid elevated inflation and interest rates, which dampened purchasing power.

Private consumption grew by 5.2% in the third quarter of 2024, improving from 4.7% in the second quarter.

“But all this is already behind us. Inflation is back to within the central bank’s 2-4% target band, while monetary policy is amidst its gradual easing cycle,” Mr. Dacanay said.

Headline inflation averaged 3.2% in 2024. The BSP also expects inflation to remain within the 2-4% target band from this year to the next, as its baseline projections are at 3.3% and 3.5% for 2025 and 2026, respectively.

The central bank began its rate-cutting cycle in August last year, delivering a total of 75 basis points (bps) worth of cuts as of end-2024. This brought the key rate to 5.75%.

The BSP has signaled further rate cuts this year.

HSBC expects the central bank to bring down the benchmark rate to 5% by the third quarter of 2025. — Luisa Maria Jacinta C. Jocson