Philippines: Consumer demand may drop next year

Due to soaring prices

MANILA, Philippines —  The growth in consumer spending in the Philippines may slow down to 5.5 percent next year from the expected 7.6 percent expansion this year, according to Fitch Solutions Country & Industry Research.

In a report, Fitch Solutions said that household spending may remain positive, with an average growth rate of 5.1 percent per year between 2023 and 2026.

“Rising consumer price inflation has been the key risk to consumer spending over 2022, and it has been eroding purchasing power and shifting consumer spending away from discretionary spending. This is the economic reality that consumers enter into in 2023,” Fitch Solutions said.

According to the research unit of the Fitch Group, inflation may quicken to 6.8 percent this year before easing to 3.7 percent next year.

Inflation averaged 5.4 percent in the first 10 months, exceeding the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

Inflation accelerated to a 14-year high of 7.7 percent in October from 6.9 percent in September as the BSP continued its tightening cycle to fight the soaring prices.

“Inflationary pressure started to rise globally in 2021, as localized shortages were created by base effects, higher commodity prices and supply chain challenges. The Russia-Ukraine conflict has also significantly impacted the global supply prices of key commodities, such as oil and gas, fertilizer, wheat, corn and barley. The commodity price increases are already feeding through into higher consumer prices and this will continue into 2023,” it said.

After delivering a total of 225-basis-point rate hikes this year, BSP Governor Felipe Medalla has signaled another 75-basis-point increase on Nov. 17 as the central bank is committed to match the aggressive rate hikes of the US Federal Reserve point by point.

“We expect household spending 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.

Meanwhile, the peso has come under significant pressure as a result of tightening credit conditions globally, which could negatively influence consumer spending power.

Fitch Solutions also cited the improving consumer confidence in the Philippines that stood at -12.9 percent in September this year from -54.5 percent in the third quarter of 2020.

Since then, Fitch Solutions said consumer confidence has improved in line with the economic recovery from the pandemic, with retail sales increasing from the first quarter of 2021 onwards.