Manila, Philippines — Strong consumption upholds the Philippine economy. Philippine Gross domestic product grew to 5.6% in 2023 regardless of inflation stresses, driven by the proceeded post-pandemic recovery in discretionary spending which leaped to 10.8%. The full recovery of employment (unemployment rates have contracted from a long-term high of 10.3% in 2020 to only 4.3% in 2023), a standardization in labor migration activity (Overseas Filipino Worker relocation added up to 2.5 million in 2023, surpassing even pre-pandemic statistics), and for the most part healthy households family and private sector balance sheets are expected to assist in addition to the spending of consumers moving forward (Figure 2).
While higher rates have eased investment spending, the tight monetary policy of the Bangko Sentral ng Pilipinas (BSP) regardless seems to have been implemented as gains in the inflation fight. For reference, the January 2024 data of inflation came in at 2.8% (beneath consensus at 3.1%), driven by lower prices of vegetables, fuel, and electricity. The January data additionally addresses the second consecutive month of inflation, which topped in at 8.7% in January 2023, remaining inside the BSP’s 2-4% objective reach interestingly since March 2022 (Fig. 5).
Additionally, since 3Q23, a core inflation run rate of less than 4% (6-month annualized) suggests inflationary tensions are not broadening. Accepting no commodity “supply shocks,” it is anticipated that a decline in headline inflation from 6.0% in 2023. to 3.6% in 2024 will occur inside the BSP’s 2-4% objective reach.
Nonetheless, the standardization in BSP policy rates would probably anticipate a more peaceful turn from the US Fed to keep away from pressure on the Philippine Peso. Most recent data demonstrates the “data dependent” US Fed and “forward-looking” markets are both expecting around 175 basis points in total policy rate cuts over the course of the following two years however the timing of the cuts will vary.
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