HOUSEHOLD consumption in the Philippines will rebound due to easing inflation and loosening monetary policy, Bank of America (BofA) Global Research said.
“Consumption growth in the Philippines has lagged overall growth in domestic product (GDP) due to elevated inflation, unemployment, and lagging wages,” it said in a report.
“However, these issues are slowly easing, and we think consumption growth has bottomed as inflation recedes, wages and employment catch up.”
The economy grew 5.2% in the third quarter, the weakest level in five quarters or since the 4.3% expansion in the second quarter of 2023.
However, household consumption rose 5.1%, improving from 4.7% in the second quarter. Consumption accounts for over 70% of the economy.
“Consumption is most sensitive to income, employment, consumer confidence, and remittances from overseas. Its growth has also been occasionally boosted by tax cuts (2023) and mandated wage adjustments (2022, 2023 and 2024),” the bank said.
BofA expects Philippine GDP to “stay shy” of 6% for this year and the next, below the government’s 6-7% and 6.5-7.5% targets, respectively.
However, it sees stronger private consumption at 5.5% for the fourth quarter. It estimates household spending to accelerate to 5.4% in 2025 from 5% this year.
“Some of the anticipated consumption growth drivers have already begun to take root in the third quarter, starting with a sharp slowdown in inflation.”
Headline inflation picked up to 2.3% in October, bringing the 10-month average to 3.3%. This was still within the central bank’s 2-4% target range.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to settle at 3.1% this year, 3.2% in 2025 and 3.4% in 2026.
Inflation is also expected to ease further after an executive order slashed tariffs on rice imports to 15%, which took effect in July.
“The government also stepped in in the third quarter to cut tariffs on rice imports — the effects of which should be apparent on domestic rice prices by the first quarter of 2025, during which we expect inflation to bottom out.”
The Philippine Statistics Authority reported that the average price of regular-milled rice dropped to P50.22 per kilo in October from P50.47 in September, while well-milled rice declined to P55.28 per kilo from P55.51.
“The decline of inflation is also expected to be accompanied by easing monetary policy,” BofA said.
BofA expects the BSP to cut rates by a total of 75 basis points (bps) this year. This would bring the policy rate to 5.75% by year’s end.
This year so far, the central bank has reduced interest rates by a total of 50 bps since August, when the BSP kicked off its easing cycle.
The Monetary Board has scheduled its last rate-setting review for the year for Dec. 19.
BSP Governor Eli M. Remolona, Jr. has said it is possible to deliver a 25-bp rate cut at the meeting.
BofA also forecasts four 25 bps worth of cuts next year, “roughly at a quarterly pace.”
“Unclear if the rate path of the BSP will inflect should the election outcome in the US eventually result in a much stronger dollar as to ultimately alter the domestic inflation outlook,” it added.
In a separate report, BofA noted that the Philippine central bank will “ease policy rates in a gradual but consistent manner in the next few quarters, broadly following the Fed.”
It also noted that the inflation outlook gives the country “ample space” to continue lowering policy rates.
“For the Philippines, the focus is more exclusively on inflation, which will dictate pace and quantum of rate cuts, while keeping an eye on the exchange rate. BSP could complement rate cuts with RRR cuts,” it added.
The BSP reduced the reserve requirement ratio (RRR) for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7% from 9.5%, effective on Oct. 25.
Mr. Remolona has said the RRR could be brought down to as low as zero before his term ends in 2029. — Luisa Maria Jacinta C. Jocson