‘Revenge spending’ seen waning in 2023, purse strings to tighten

Filipino consumers’ “revenge spending,” which propelled the Philippine economy to grow faster than widely held expectations in the third quarter and probably all of 2022, is seen losing steam in 2023 as households turn toward rebuilding their savings and away from high interest rates on loans.

With the waning passion to spend, ING Bank and Pantheon Macroeconomics believe that the Philippines will struggle to keep momentum in the growth of gross domestic product (GDP), which might turn out to be much lower than the government’s goal.

Nicholas Mapa, senior economist at ING Bank, said in a commentary that one of the surprises during this year was how the phenomenon would have lasted following the abrupt lifting of mobility restrictions as the government enabled the reopening of the Philippine economy.

“We had previously expected to see a sharp surge in spending after restrictions were relaxed, but we underestimated the [vigorous] attitude toward consumption even in the face of surging inflation,” Mapa said.

Stretched incomes

How much longer the spending binge will last is linked to “how much longer will savings support this splurge as Filipinos were likely forced to dip deeper into the cookie jar to augment stretched incomes,” he added.

The Dutch banking giant’s analyst for the Philippines cited the Bangko Sentral ng Pilipinas’ (BSP) fourth-quarter Consumer Expectations Survey, which he said showed that Filipinos initially dipped into savings to fund the recent pickup in expenditure but have since diverted funds to rebuild decimated savings.

“We believe that the Philippine economy ‘cashed in its chips early,’ front-loading growth to 2022 with revenge spending powering growth well-past target to 7.8 percent full-year growth,” Mapa said.

Rebuilding savings

“Next year however could see households rebuilding savings … as inflation stays above target and the negative fallout from multiyear-high interest rates finally surfaces,” he added.

The BSP’s goal is to bring back inflation to within the range of 2 percent to 4 percent. Toward this goal, the regulator had raised its key policy rate by a total of 3.5 percentage points from an all-time low of 2 percent to 5.5 percent.

Mapa said that a reversal of revenge spending, along with reluctance to make a concerted investment push due to elevated borrowing costs, will limit moderate growth to “roughly 5 percent” in 2023.

This forecast is a full percentage point below the government’s target of expanding GDP within the range of 6 percent to 7 percent next year.

“The Philippines likely will struggle, too, in the year ahead,” said Miguel Chanco, chief economist for emerging Asia at UK-based Pantheon Macroeconomics.

“Filipino consumers had only a modest COVID-era savings cushion to land on as the cost-of-living crisis erupted, compelling them to dip into already-thin safety nets, and to rely on a near-vertical and irreplicable spike in consumption loans,” Chanco said.

Both ING Bank and Pantheon Macroeconomics say that, with inflation remaining above target next year, the BSP will raise its policy rate by 0.5 percentage more to bring it to a peak of 6 percent.