Consumer spending up 5.3% in Q4 2023

The Philippines’ consumer spending growth managed to rebound with a 5.3 percent expansion in the 4th quarter of 2023 to end six consecutive quarters of deceleration. This can be attributed to the recent slowdown in inflation, boosting confidence and purchasing power.

According to Bank of the Philippine Islands (BPI) economic insight, the turnaround in HFCE (household final consumption expenditure) growth shows how resilient consumer demand is underpinned by its young population, funded with remittances and improving job opportunities. Among the consumer items, the ones with the significant increase in spending were restaurants, hotels, transport, and recreation.

Likewise, investment spending showed a notable recovery in the 4th quarter despite the elevated interest rates, posting a growth of 11.2 percent year-on-year.

BPI believes that this upswing suggests that businesses have likely adapted to the existing interest rate environment and are comfortable enough to ramp up their capital expenditures.

“It seems that they are opting to expand their operations in response to the increase in consumer demand, deciding to just absorb the financing costs,” BPI said.

Public sector construction spending also managed to sustain its upward momentum. Durable equipment growth has bounced back to double digits as firms invested more on new assets like transport and telecommunication equipment, just as agricultural machinery picked up.

The Philippines has maintained its position as one of the fastest growing economies in the region despite the sub-6 percent growth last quarter. The BPI report emphasized that the country’s resilience is evident despite the headwinds affecting it, such as the high interest rate environment.

“The economy has been able to absorb the rate hikes despite having the most aggressive monetary tightening in the region. It can be argued that the aggressive rate hikes were actually essential, as they have helped in preventing higher inflation which could have dragged growth further. A more pronounced economic slowdown would have been felt if the Bangko Sentral Ng Pilipinas [BSP] had not acted decisively to keep inflation expectations well anchored while tempering the second round effects of supply shocks on core CPI [consumer price index] items,” the report explained.

The Philippine economy expanded by 5.6 percent in the 4th quarter of 2023, faster than the 5.2 percent median estimate of analysts surveyed by Bloomberg. On an annual basis, the Philippine economy grew by 5.6percent in 2023.