Domestic spending to be key pillar of economy

THE Philippines’ economic strength and resilience this year will be driven by its consumers, a HongKong and Shanghai BANKING CORP. (HSBC) OFfiCIAL SAID ON WEDNESDAY.

“Domestic consumer spending will be a key pillar of its economy due to a healthy labor market and strong wage growth,” said James Cheo, chief investment officer at HSBC Global Private Banking and Wealth Southeast Asia and India.

Cheo anticipates a 5.3-percent gross domestic product (GDP) growth for the Philippine economy this year.

While it is still below the 6.5- to 7.5-percent target of the government, Cheo said that the country has one of the most favorable demographics in the region and is “expected to enjoy the structural tailwinds of its demographic dividends in the years ahead.”

The second quarter of the previous year saw a notable slowdown in GDP growth to 4.3 percent, mainly attributed to a decline in government spending. It recovered to 5.9 percent in the third quarter but remained below the year-todate target of 5.5 percent.

The full-year 2023 GDP results are set to be released by the Philippine Statistics Authority at the end of this month.

In response to potential risks such as a global economic slowdown, El Niño, other natural disasters, and geopolitical and trade tensions, the interagency Development Budget Coordination Committee lowered the 2024 growth target last month to a range of 6.5 to 7.5 percent, down from the initial 6.5 to 8.0 percent.

Meanwhile, Cheo emphasized that inflation continues to pose a challenge, with the possibility of an upward risk arising from unexpectedly high food prices.

“We think that BSP (Bangko Sentral ng Pilipinas) will stay vigilant and keep policy rates on hold for the first half and perhaps contemplate rate cuts in the second half,” Cheo said.

The Monetary Board of the BSP decided to maintain the key interest rates in its December meeting.

The first meeting of 2024 is scheduled for February 15, and analysts anticipate maintaining higher rates, considering that inflation is expected to remain within the target range of 2.0 to 4.0 percent.

A series of rate hikes, initiated in May 2022 due to surging inflation following Russia’s invasion of Ukraine, resulted in a cumulative increase of 450 basis points.

The most recent adjustment, an off-cycle 25 basis points in October, brought the BSP’s benchmark rate to 6.5 percent, marking the highest level since 2007.