Household spending growth seen slowing amid inflation, oil shock

HOUSEHOLD spending growth in the Philippines is expected to slow this year as elevated inflation, weak consumer confidence, and higher oil prices due to the Middle East conflict weigh on purchasing power, Fitch Solutions unit BMI said.

In a report on Monday, BMI trimmed its projection for household spending growth in the Philippines to 4.4% this year from its 4.5% estimate in February.

The latest forecast also points to slightly weaker consumption growth compared with the 4.6% recorded in 2025.

“We hold a cautiously optimistic outlook for consumer spending in the Philippines over 2026,” BMI said.

“While a stable labor market will facilitate real wage growth, inflation has risen to a three-year high and elevated oil prices from the Middle East conflict can erode household purchasing power, weighing on domestic consumption,” it added.

In the first quarter, household final consumption expenditure grew by 3%, slowing from 5.3% in the same period last year and 3.8% in the fourth quarter of 2025.

Excluding the pandemic years, this marked the slowest pace of household spending growth since the 2.6% recorded in the third quarter of 2010.

Meanwhile, rising food and utility costs amid elevated oil prices pushed headline inflation to a more than three-year high of 7.2% in March from 4.1% in February and 1.4% a year earlier.

BMI said consumer sentiment could also weaken further as high inflation and adverse weather conditions compound concerns stemming from last year’s corruption scandal.

This came even as consumers turned less pessimistic in the first quarter, with the confidence index improving to -15.8% from -22.2% in the fourth quarter of 2025, based on the latest Bangko Sentral ng Pilipinas (BSP) survey.

“Nevertheless, consumer confidence weakness continues to be driven by concerns over weakening household financial situations, governmental corruption, spiking inflation and natural disasters,” the Fitch unit said.

On the other hand, BMI said private sector spending may expand at a faster pace of 4.7% this year.

Meanwhile, Nomura Global Markets Research cut its Philippine economic growth forecast for 2026 to 4.6% from 5% after the economy posted weaker-than-expected first-quarter growth.

“The weak outturn in Q1 and the continued impact of the war in Iran prompted the downward revision to our 2026 GDP (gross domestic product) growth forecast,” Nomura analysts Euben Paracuelles and Nabila Amani said in a May 8 report.

Philippine GDP growth slowed to 2.8% in the first quarter from 3% in the previous quarter and 5.4% a year earlier, marking the weakest expansion since the first quarter of 2021.

The latest GDP print also fell short of market expectations, with a BusinessWorld poll of 21 economists yielding a median estimate of 3.4%.

Mr. Paracuelles and Ms. Amani said economic growth would likely remain subdued in the first half of the year due to weak sentiment and delayed government projects, with the Middle East conflict posing additional risks.

“We expect GDP growth to remain weak through H1 2026, as limited pre-procurement activity delays projects and as private investment spending continues to be hurt by weak sentiment,” they said.

“The impact of the Iran conflict on energy prices is only adding to these headwinds and causing a surge in inflation, weakening household purchasing power.”

However, the Nomura analysts said the government’s planned catch-up spending and favorable base effects could help support economic recovery in the second half of the year.

HOT INFLATION AHEAD
BMI expects inflation to average 4.3% this year, slightly above the BSP’s 2%-4% target range.

“This is higher than the usual inflation that consumers were used to pre-COVID (2015-2019, when inflation averaged 2.8%),” it said.

“While nominal income growth will keep pace with inflation, prolonged inflation, particularly in relation to food, will mean that consumers will have to increasingly allocate more of their disposable income towards meeting necessities.”

BMI also expects the peso to depreciate only slightly to an average of P58.50 against the dollar this year from P57.50 in 2025, supported by the BSP’s ample gross international reserves.

The peso breached the P61-per-dollar level for the first time last month. On April 29, it weakened to a record low of P61.567 against the greenback, based on Bankers Association of the Philippines data.

Despite elevated prices, BMI said Filipino households’ purchasing power remains on track to improve over the medium term.

“This dynamic will be the key driver behind our consumer spending forecast for the Philippines over the year,” it said.

“The improving outlook over the medium term means that consumers will expand spending, leading to growth in consumer spending and providing tailwinds to the Philippine retail sector over 2026,” it added.

Meanwhile, Nomura expects the country’s current account deficit (CAD) to widen to 4.8% of GDP this year from its previous estimate of 4.5%.

This would be wider than the 3.3% share recorded in 2025 and the BSP’s 4% forecast for 2026.

“We raised our 2026 CPI (consumer price index) inflation forecast to 6.1% year on year, further above BSP’s 2%-4% target, reflecting our latest Brent crude oil price assumption of $98.4 per barrel from $86 previously, which is also prompting revisions to our CAD forecasts,” the Nomura analysts said.

However, the Japan-based think tank maintained its fiscal deficit forecast at 5.1% of GDP for 2026 as it expects the government to stick to targeted fuel subsidies.

“We maintain our forecast for a narrowing of the fiscal deficit to 5.1% of GDP for 2026 from 5.6% in 2025, still well above the pre-COVID average of 2.4%,” Mr. Paracuelles and Ms. Amani said.

“We believe blanket fuel subsidies are unlikely to be implemented by the government given fiscal constraints, limiting the impact of rising oil prices on the fiscal deficit.”

The latest Treasury data showed the National Government’s budget deficit widened by 2% year on year to P349.7 billion in March.

The government expects the fiscal deficit to settle at P1.611 trillion or 5.3% of GDP this year. — Katherine K. Chan