Household spending likely improved in the fourth quarter of 2024, recovering from a slowdown in the third quarter, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday, without giving estimated figures.
Previous data from the BSP showed that household spending in January to September last year grew 8.4 percent to P14.3 trillion.
The Monetary Board said in the minutes of its meeting last December: “Domestic demand is expected to remain firm but subdued. Investments and household consumption continued to support domestic demand.”
“Investments grew due to sustained expansion in private construction activities, while household spending improved amid easing inflation. However, weather-related disruptions tempered economic activity,” the policy-setting board added.
The World Bank considers household spending as a key component of economic activity and is used to measure living standards. It usually makes up the biggest portion of a country’s gross domestic product (GDP) and a significant change in consumer behavior can directly impact a country’s overall economic performance.
Compared with the first nine months of 2023, household spending in the corresponding 2024 period slowed in percentage terms, even while the value increased.
The disparity could be partly explained by higher prices over the past three years or since the Russia-Ukraine war started on February 24, 2022, Michael Ricafort, chief economist, at RCBC said on Wednesday.
Higher prices reduced the purchasing power of both consumers and businesses, while rising interest rates globally and locally since 2022 slowed down investments, trade, employment, and other economic activities, the economist said.
As a result, people were buying the same items but at a higher price, since they have no choice especially when it comes to transportation fares, electricity, fuel and other affected products and services.
Household spending in the third quarter of 2024 accounted for 76.4 percent of the country’s GDP.
Despite the attention-grabbing headlines about America’s protectionist policies on trade, a sense of relief can be gleaned from all this considering the Philippines would be the least affected country in the region, HSBC said in a separate statement.
“The economy does have some layer of insulation; household consumption remains the country’s main growth driver, and no other economy can put a tariff on consumption,” Alex Dacanay, HSBC’s economist for the Asean region, said.
Remittances, demographics, and services exports – three sectors of the economy that drive consumption – “are also subject to minimal tariff risks, at best,” according to HSBC’s economist.
“That being said, it may be disconcerting to know that household consumption in 2024 grew at its slowest pace since the Global Financial Crisis, barring the COVID-19 pandemic,” he added.
High inflation and interest rates in 2022 and 2023 significantly eroded the purchasing power of households, Dacanay said.
Now that inflation is back to within the central bank’s 2-4 percent target, and while monetary policy is in its gradual easing cycle, inflation worries for now are a thing of the past.
“We think household consumption in the Philippines should return, bit by bit, to its regular levels, bringing overall GDP growth back to the range of 6 percent or more,” Dacanay said.
He said leading indicators suggest a strong recovery in non-durable consumer goods.
“Non-durable spending may be improving fast, but spending on big-ticket items, such as cars and real estate, will need more time to return to normal. These goods are large expenditures by nature, potentially requiring households to acquire credit,” he added.
HSBC expects the central bank to cut its policy rate by 25 basis points in each quarter until it reaches 5 percent by the third quarter of this year.
With inflation expected to remain within the target range of the government for last year and this year, the policy-setting Monetary Board reduced the key rates three times for a total of 75 basis points last year.
BSP’s target Reverse Repurchase (RRP) Rate now stands at 5.75 percent, while interest rates on the overnight deposit and lending facilities have been adjusted accordingly to 5.25 percent and 6.25 percent, respectively.
