Fitch Solutions sees PHL consumer spending growth slowing in 2023

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FITCH SOLUTIONS affirmed its earlier view that household spending growth could slow this year due to inflationary pressures.

“We expect household income growth to outpace consumer price inflation in 2023. This will ensure real income growth and greater potential for consumer spending. However, inflation is likely to remain elevated, and we expect the central bank to tighten monetary policy further in an attempt to maintain control,” Fitch Solutions said in its Philippines Consumer Outlook report on Tuesday.

It maintained its forecast for household spending, which it expects to grow by 5.5% this year, with growth in the 2024-2027 period expected to average 5.1%. 

Last year, household consumption surged 8.3% from 4.2% in 2021, according to the Philippine Statistics Authority.

In terms of demand, household spending was the biggest contributor to growth last year, driven by restaurant and hotel spending.

Fitch Solutions said consumer confidence in the Philippines remains low.

“Our forecast for real consumer spending in the Philippines is in line with our forecast that the Philippines’ real GDP growth will decelerate,” it said.

Fitch Solutions expects gross domestic product (GDP) to grow by 5.9% this year and 6.1% in 2024.

“The slowdown in growth was in line with expectations, but the pace of deceleration was more modest than predicted. Elevated energy prices and tightening monetary policy will result in further deceleration during the forecast period,” it added. 

Fitch Solutions said inflation will also likely remain elevated and above the central bank target.

“While we forecast inflation to moderate slightly over 2023, inflation remains elevated and will continue to negatively impact the prospects for Filipino consumers,” it added.

The Bangko Sentral ng Pilipinas (BSP) expects headline inflation to have settled within the 7.5% to 8.3% range in January.

If realized, the upper end of the forecast range could top the 14-year high of 8.1% in December. Year-earlier inflation came in at 3%.

A reading of 8.3% would also be the highest since the 9.1% posted in November 2008 during the Global Financial Crisis.

Fitch Solutions said it sees inflation averaging 5.4% this year, above the BSP’s average target forecast of 4.5%.

“If nominal wages cannot keep up with these high rates of inflation, consumers will continue to see erosion in their purchasing power and the uneven nature of price increases will mean that consumers will need to increasingly allocate more of their disposable income to meeting the basic necessities,” it added. — Luisa Maria Jacinta C. Jocson