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  • Writer's pictureBy The Financial District

Consumer Spending To Boost PH Growth

Household spending in the country is likely to grow by 5.9% yearly in the next four years, Fitch Solutions BMI said, putting the economy on track for faster growth.

Photo Insert: Fitch Solutions unit BMI said its consumer spending forecast is in line with economic growth expectations for the Philippines.

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%.

All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

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.

Business: Business men in suite and tie in a work meeting in the office located in the financial district.

A recent media 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.

Entrepreneurship: Business woman smiling, working and reading from mobile phone In front of laptop in the financial district.

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%.”

Banking & finance: Business man in suit and tie working on his laptop and holding his mobile phone in the office located in the financial district.

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.

Market & economy: Market economist in suit and tie reading reports and analysing charts in the office located in the financial district.

MI 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.

Science & technology: Scientist using a microscope in laboratory in the financial district.

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.

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