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 7.6% in 2022 after growing by 5.7% in 2021. The economy has also sustained its recovery with a 5.6% growth in 2023. With mobility back to pre-pandemic levels after the lifting of COVID restrictions, economic activity has increased significantly in the past year.
Household consumption grew by 5.6% in 2023, partly driven by pent-up demand following the easing of restrictions and the expansion of ecommerce. Consumers have started to spend more again on high-contact services and non-essential items, unlike in the first 2 years of the pandemic when more than half of their budget were spent on essentials like food, housing, and utilities.
Investment spending has recovered further amid the improvement in the economic environment, growing by 5.4% in 2023. With consumer demand now back to normal, businesses have ramped up their capital expenditures to expand their capacity.
Inflation has finally settled within the target of the BSP after 22 months. With global commodity prices remaining stable, the contribution of transport and utilities to inflation has declined. So far, it seems the outlook for commodities like oil will continue to be favorable for the country in the coming months. Commodity prices may remain stable given weaker demand from major economies as they continue to absorb the impact of higher interest rates.
With the anticipated easing of 2024 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.