The growth of the Philippine economy may have surpassed the government’s target at 7.7 percent, thanks mainly to brisk consumer spending as households reclaimed their lifestyles before the onset of the COVID-19 pandemic by going out for meals, entertainment and travel, according to ING Bank.
The Philippine government expects gross domestic product (GDP) to have increased by 6.5 to 7.5 percent in 2022. “We expect another quarter of strong growth for the Philippines, supported mostly by an extended run of ‘revenge spending’ during the holiday season,” ING Bank said in a commentary penned by senior economist Nicholas Mapa.
The Dutch financial services group also estimates that Philippine GDP grew by 7.5 percent in the fourth quarter of 2022, which would be slightly slower than third-quarter expansion, which the Philippine Statistics Authority (PSA) put at a preliminary 7.6 percent.
The PSA will release official data on Jan. 26, including a possibly revised third-quarter data.
ING’s full-year estimate for 2022 growth “will be faster than the official growth target of 7.5 percent, [but] 2023 presents several challenges, which could push the trajectory of growth down sharply,” the bank said.
As early as last November, ING Bank had warned that 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, will be losing steam in 2023 as households turn toward rebuilding their savings and away from high interest rates on loans.
Turn toward savings
Back then, Mapa said that one of the surprises in 2022 was how the phenomenon would have lasted following the abrupt lifting of mobility restrictions as the government enabled the reopening of the Philippine economy.
He said they underestimated the vigorous attitude of households toward consumption even in the face of surging inflation.
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 economist believes the boost from households, which he expected to have lasted throughout the yearend holiday season, will dissipate as it eats up on savings and high interest rates take a toll on demand.
Mapa observed that beyond food and entertainment, the growth in consumer spending spread out into home improvement projects, purchases of durable goods, and even car sales.
He added that successive months of drawdown on savings and the accumulation of debt will eventually curtail spending down the line when savings eventually give way. INQ