GDP seen to grow below gov’t target in 2024 despite revenge spending boost

IMAGE: Daniella Marie Agacer

MANILA, Philippines — Analysts from First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) predict that despite revenge spending boosting the economy, growth is unlikely to reach the lower end of the Marcos administration’s downgraded target.

They anticipate an average GDP growth of 6 percent this year.

That would be faster than the projected 5.5 percent expansion last year. The government will release the full-year GDP data for 2023 on Jan. 31.

But even if FMIC and UA&P’s forecast is realized, GDP this year would miss the government’s 6.5 to 7.5 percent growth target, which was revised downward last month from the old goal of 6.5 to 8 percent amid threats from a prolonged El Niño weather phenomenon and high interest rates.

Explaining the projection, Victor Abola, economist at UA&P, said “revenge spending”—or the surge in consumption due to pent-up demand after the world emerged from COVID-19 lockdowns—remains very much in vogue despite being diluted by above-target inflation.

“So, we’re facing higher reserves and growth will accelerate … driven by the services sector, particularly when you have transport, accommodations and food services, which are experiencing the revenge spending,” Abola said.

READ MORE: ‘Revenge spending’ waning; food, beverage sales seen slowing

“And I would like to emphasize that the revenge spending is not yet over. We’re just seeing the beginning of it because high inflation had sort of toned down that expansion,” he added.

Low unemployment, high spending

The country’s GDP snapped three consecutive quarters of slow growth when it expanded 5.9 percent in the July to September period last year

What saved the economy from another slowdown was brisk government spending, which picked up the slack from household consumption that grew at a slower pace of 5.5 percent as brutally high inflation forced millions of Filipinos to tighten their belts.

READ MORE: Spending pullback trimmed PH budget deficit in Nov

So far, inflation has dampened consumer confidence. Results of the latest consumer expectations survey by the Bangko Sentral ng Pilipinas (BSP) showed households were less optimistic for the next 12 months.

The BSP also reported that the percentage of Filipino families with savings had dropped to 29.1 percent in the fourth quarter of 2023, from 32.8 percent in the preceding three months, amid rising consumer prices.

But Abola believes easing inflation and improving labor market conditions should help replenish household savings depleted by inflation.

The country’s unemployment rate had fallen to an 18-year low of 3.6 percent in November. Meanwhile, inflation softened to a 22-month low of 3.9 percent in December last year, the first time since March 2022 that price growth settled within the BSP’s 2 to 4 percent target range.