By Keisha B. Ta-asan | BusinessWorld
May 04, 2023
HOUSEHOLD SPENDING in the Philippines is likely to grow by 5.9% yearly in the next four years, Fitch Solutions BMI said on Wednesday, putting the economy on track for faster growth.
In a report, the research firm upgraded the 2024-2027 forecast from 5.1% in January, saying consumer income growth would probably outpace rising prices. It kept this year’s forecast at 5.5%.
“Inflationary forces will remain elevated across 2023, but nominal income growth is still forecast to outpace inflation, which ensures real income growth for consumers, giving greater propensity for spending,” BMI said.
Last year, Philippine household consumption grew by 8.3% from 4.2% in 2021. It was the biggest contributor to growth in 2022, driven by restaurant and hotel spending.
BMI, a unit of Fitch Solutions, said its consumer spending forecast is in line with economic growth expectations for the Philippines.
Fitch Solutions earlier kept its growth outlook for the Philippines at 5.9% this year, while raising the forecast for 2024 to 6.6% from 6.1%.
This year’s growth forecast is lower than the government’s 6-7% target and the 7.6% expansion last year. The outlook for next year is within the government’s 6.5-8% target for 2024 to 2028.
BMI inflation that remains above the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target might affect consumer spending.
“We forecast inflation will continue to worsen over 2023 (from 5.8% in 2022, to 6.5% over the year) and that this will continue to negatively impact the prospects for Filipino consumers,” it added.
A BusinessWorld poll of 14 analysts yielded a median estimate of 7% for April inflation, settling near the upper end of the 6.3-7.1% forecast by the Philippine central bank. This could be slower than 7.6% in March and the slowest in seven months.
“Although [March inflation] is the lowest recorded inflation figure since September 2022, it is still one of the highest levels of inflationary spikes since the global financial crisis in 2008 as prices for household goods, clothing and nonessential spending categories have remained unchanged or have accelerated,” BMI said.
The research firm said the Philippine peso might weaken to P56.50 a dollar this year from P54.50 in 2022 and could further add to inflationary pressures.
“Elevated inflation will thus continue to be a risk to the forecast, with respect to consumer spending in the Philippines,” it said. “However, our Country Risk team forecasts inflation to mediate downwards for 2023, averaging 6.5% year on year and ending the year at 4%.”
The BSP expects full-year inflation at 6% before easing to 2.9% in 2024.
Central bank Governor Felipe M. Medalla earlier said inflation would slow to the 2-4% target by the fourth quarter.
To tame inflation, the Monetary Board has raised borrowing costs by 425 basis points (bps) since May last year, bringing the key policy rate to 6.25%. The BSP will meet on May 18 to discuss policy.
BMI said key rates in the Philippines might peak at 6.25% in the first half, with the central bank likely to keep rates steady at its May meeting.
“We forecast the central bank to leave rates on hold through the second half of the year as global monetary conditions stabilize and as headwinds to the Philippine economy mount,” it said.
Meanwhile, the global research and data firm said the demand for migrant Filipino workers has been increasing globally.
“In particular, there is a demand for Filipino workers skilled in jobs related to medical and health services, construction and housekeeping,” BMI said.
Cash remittances rose by 3.6% to $32.539 billion in 2022 from a year earlier, according to central bank data.
Elevated inflation across global markets might dent remittances, it said. The peso would probably weaken to P56.50 a dollar this year and could further add to inflationary pressures.
The likely weakening of the peso will also “reduce the amounts sent back by overseas workers in local currency.”
The peso closed at P55.335 a dollar on Wednesday, up by 0.50 centavo from its Tuesday close, according to data from the Bankers Association of the Philippines.