Consumer spending may remain muted even during the holiday season, as high prices dampen demand. — PHILIPPINE STAR/MIGUEL DE GUZMAN

HOUSEHOLD CONSUMPTION in the Philippines will likely remain under pressure in the fourth quarter amid multi-year high borrowing costs and elevated inflation, Moody’s Analytics said.

Moody’s Analytics in a report said Philippine economic growth may average around 5.4% this year, which is below the government’s 6-7% target.

“The Philippine economy will have to weather domestic and global storms in the last quarter of the year. The aggressive run of monetary policy tightening in 2023 should be over, but rate cuts are off the table until the middle of next year,” it said.

“Until then, household budgets will remain under pressure.”

The Philippine economy expanded by a better-than-expected 5.9% in the third quarter, driven by a recovery in government spending. This was faster than the 4.3% gross domestic product (GDP) growth in the second quarter but slower than 7.7% a year earlier.

Year to date, GDP growth averaged 5.5%, still below the 6-7% full-year target.

Moody’s Analytics noted the third-quarter GDP data reflected deteriorating demand. Household consumption grew by 5% in the July-to-September period, slower than 8% a year prior and 5.5% in the previous quarter.    

“Private consumption, the economy’s main engine, has stalled on account of elevated inflation and high borrowing costs,” it said.

Headline inflation slowed to 4.9% in October from 6.1% in September and 7.7% in October 2022, marking its slowest pace in three months. However, inflation breached the 2-4% target for the 19th straight month in October.

For the 10-month period, inflation averaged 6.4%. This is still above the BSP’s 5.8% full-year forecast.

The Bangko Sentral ng Pilipinas (BSP) has raised interest rates by 450 basis points (bps) since May 2022 to fight inflation. The benchmark interest rate is currently at a 16-year high of 6.5%.

“Cost-of-living pressures have forced many to rein in spending. The retreat on a year-earlier basis in gross capital formation and imports of goods and services also underscored the broader weakness in domestic demand that has put a lid on business and consumer confidence,” Moody’s Analytics said.   

In the third quarter, gross capital formation declined by 1.6%, ending nine straight quarters of growth. This was a reversal of the 18.2% expansion a year ago and 0.3% in the second quarter.

Imports of goods and services also shrank by 1.3%, a reversal from the 18.5% growth in the third quarter of 2022 and 0.2% a quarter earlier.

Meanwhile, Nomura Global Markets Research in a separate report said they kept their Philippine GDP forecast at 5.2% for 2023, slower than 7.6% in 2022.

However, it sees growth picking up to 5.8% in 2024 and 6.1% in 2025, as better infrastructure spending will likely boost the economy’s growth momentum.   

“A resurgence in food and energy prices and a deeper global growth slowdown are downside risks to growth,” Nomura said.

The Japan-based research firm also maintained its full-year inflation forecasts at 6.2% for 2023 and 3.8% for 2024, despite the lower-than-expected inflation print in October.

“Base effects will start to become more favorable in the next few months but, similar to BSP’s assessment, we believe headline inflation is unlikely to return to BSP’s 2-4% target until August 2024,” Nomura said.

BSP Governor Eli M. Remolona, Jr. earlier said that even if inflation may go down to within the 2-4% target in the first quarter of 2024 due to base effects, inflation may likely go up again to above the target until July.

“Against this backdrop, we think BSP’s hiking cycle is likely over, despite maintaining its hawkish tone after delivering an off-cycle 25-bp hike to 6.5% in October,” Nomura said.

Nomura noted that the BSP may start cutting policy rates in September 2024.

The Monetary Board is widely expected to hold borrowing costs at 6.5% at its meeting on Thursday, according to 15 of 18 analysts in a BusinessWorld poll conducted last week. — Keisha B. Ta-asan