HIGH inflation and interest rates have hindered the purchasing power of most Filipinos, but spending will likely improve as rates are expected to stabilize this year, a Fitch Group unit said.
“We hold a positive outlook for consumer spending in the Philippines, with an acceleration in real household spending growth — from 5.1 percent in 2023 to 6.2 percent in 2024,” BMI Country Risk & Industry Research said on Tuesday.
“In real terms, we expect household spending to grow to P12.7 trillion (at 2010 prices),” it added.
Still, elevated inflationary pressures and high debt levels, along with debt servicing costs, will continue to influence spending, BMI said.
It expects household spending growth to steady at 5.9 percent in 2025 to P13.5 trillion.
“Easing inflation and a tight labor market will support spending, as real wage growth returns to positive territory, which will support purchasing power over the year,” BMI said.
It noted that consumer confidence in the country remained sluggish but added that “there has been some upward momentum” since the -54.4 percent during the pandemic years.
At -20.5 percent as of the second quarter, however, sentiment remains the weakest since the first quarter of 2021 and is being driven by worries over prices, incomes, jobs and government effectiveness.
Consumer survey results were mixed for the latest quarter and will continue to be so over the next 12 months, BMI said.
The outlook for consumer spending this year, it said, is in line with expectations of 6.2-percent economic growth for 2024
Deteriorating external demand will likely weigh on the economy, but private consumption expenditure is expected to grow by 4.7 percent, up from 4.1 percent in 2023.
“Easing inflationary pressures will provide relief to real household incomes and enable growth in spending,” BMI said.
Inflation was forecast to hit 3.2 percent this year and ease further to 2.9 percent in 2025, within the Bangko Sentral ng Pilipinas’ 2.0- to 4.0-percent target.
“Risks to our consumer spending forecast stem from the possibility that inflation remains elevated for longer than we currently expect, thereby potentially eroding purchasing power,” BMI said.
Geopolitical risks are also evident, given the current tensions in the Middle East (e.g. between Iran and Israel). “If oil prices rise from current levels due to geopolitical tensions, inflation is likely to continue for longer.”
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