Insights & blogs
Jul 04, 2024
Economic update
Global GDP growth is expected to slow down in 2024 as economies continue to deal with inflation while absorbing the impact of rate hikes. While 2023 rate hikes were milder than in 2022, the adjustment process to higher borrowing costs may extend for a considerable duration.
The Philippine economy expanded by 5.5% in 2023, following a growth rate of 7.6% in 2022. While economic activity has normalized post-COVID, high inflation kept GDP growth below 6% as consumers tightened their spending. Private construction and real estate also struggled as they dealt with the lingering effects of COVID, such as the decline in office demand due to work from home arrangements. Despite the headwinds, the Philippines continues to be one of the fastest growing economies in the ASEAN with a 5.7% growth in the 1st quarter of 2024.
Household consumption grew by 4.6% in the 1st quarter, sustaining its spot as the biggest driver of GDP growth. It accounted for 3.5% of 5.7% GDP growth during the quarter. The share of discretionary items like restaurants and hotels in total consumer spending has expanded further amid the normalization of spending patterns after COVID.
Inflation may accelerate further in the next two months, but it is expected to decrease sharply in the second half of the year. Once inflation is within the BSP's target range, the central bank may begin cutting interest rates. However, any rate cuts are expected to be marginal, with possibly one or two cuts this year.
With the anticipated easing of inflation, consumer spending may recover in 2024. Growth of household consumption will likely continue to outpace that of our ASEAN peers given the favorable demographic profile of the country, combined with the continuous inflow of remittances from abroad and the declining rate of unemployment.
Investment spending may also grow faster now that adjustments in the construction sector have been made just as interest rates may have already reached their peak. Businesses may become more aggressive with their capital expenditures as the outlook for growth with lower inflation appears to be in place. Public construction will continue to be a major driver of capital spending as the government ramps up its infrastructure program.
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