Consumer spending is forecasted to grow by 5.5% this year in the Philippines'

Household spending in Philippines is expected to grow by nearly 5.5% this year, a dip from last year’s growth forecast of 8.2%. Though consumer confidence has grown since the pandemic, the rise has not been incremental. This is largely owed to unemployment rates falling to an all-time low while high costs of living persists. Moreover, with high inflation rates, it is no surprise that consumers are opting for discretionary spending. Even though consumer confidence has grown since the pandemic, the rise has not been incremental.

For the full year of 2023, Fitch Solutions projected the unemployment rate to settle at 5.4 percent.

Fitch Solutions’ new report states, “We expect household income growths to outpace consumer price inflation in 2023. This will ensure real income growth and greater potential for consumer spending.” The report highlights that consumer spending forecast for 2023 aligns with the Philippines’ GDP growth, which is expected to decelerate from 7.4% to 5.9% this year.

According to the report, “the slowdown in growth was in line with expectations, but the pace of deceleration was more modest than predicted. Elevated energy prices and a tightening monetary policy will result in further deceleration during the forecast period,” it added. Moreover, the Peso is forecasted to depreciate, and for a country that remains heavily reliant on imports, consumers are likely to face costlier imported products.

For the medium term, Fitch Solutions forecasted consumer spending to average 5.1% annually from 2024 to 2027. This is attributed to growing consumer confidence ever since the pandemic, which, while has not risen incrementally, has shown improvement. It has gone from -54.5 in the third quarter of 2020 to -14.6 in 2022.

Additionally, the research group added that the Philippines' strong labour market was largely responsible for consumer spending expansion in 2022 and that the trend is forecasted to continue this year. The report said that many markets in the Philippines have boasted strong labour markets post pandemic, driven by rapid economic recoveries, both locally and globally. Additionally, governments have been very supportive of local labour markets, resulting in significantly tighter markets that have pushed up nominal wages.

Regardless, rising inflation rates will continue to risk income levels moving forward.

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