Private consumption to slow down the most in Philippines
British banking giant HSBC sees private consumption slowing down the most in the Philippines due to soaring inflation.
In its latest ASEAN perspective, HSBC said that the purchasing power of wages in the Philippines and Malaysia deteriorated in 2022 as the prices of goods rose faster than the increase in wages.
“We think consumption in ASEAN will slow in 2023 but in varying degrees; consumption in the Philippines will likely slow down the most, while Vietnam, Malaysia and Singapore may show some resilience,” HSBC said.
While consumption should remain supportive of growth, the bank said the Philippines and Vietnam have also seen punchy recoveries in their respective consumption.
HSBC sees private consumption in the Philippines slowing down sharply to about six percent this year from a little over eight percent last year.
In the Philippines, around 40 percent of spending went to food and beverage, partly due to high food inflation.
HSBC said surging food prices was the main culprit of accelerating inflation in the Philippines.
Inflation accelerated to a fresh 14-year high of 8.7 percent in January from 8.1 percent in December. It quickened to 5.8 percent last year, exceeding the two to four percent target range of two to four percent, from 3.9 percent in 2021.
Fortunately, most ASEAN economies passed the peak of inflation, though the Philippines and Vietnam have continued to see intensifying price pressures. That said, inflation will likely moderate gradually, suggesting elevated price pressures at least through the first half. After all, core inflation has been rising in most economies, reflecting a buoyant labor market,” HSBC said.
The bank said the number of persons employed in the Philippines as a percent of the pre-pandemic trend already exceeded the trend, supporting the consumption recovery seen last year.
“Unlike the Philippines, however, Thailand can still rely on the expected tourism boom in 2023 to create jobs or replace old jobs with better paying ones,” HSBC said.
HSBC reiterated that the prices of goods and services rose faster than wages in the Philippines last year, eroding the purchasing power and curtailing consumption in the foreseeable future.
“Inflation usually works with a lag and households will likely continue to readjust their expenditure throughout the year in consideration of the steep rise in the cost of living,” it said.
According to HSBC, the Philippines saw the purchasing power of its wages decline significantly, wherein the rise in the cost of living almost doubled compared to the rise in wages.
“This deterioration will likely take a toll on consumption in 2023 as households find their way around to make ends meet amid the squeeze in household budgets,” it said.