THE UNEMPLOYMENT RATE in the Philippines may pick up to 6.3% this year, which could impact consumer spending throughout 2024, according to BMI Country Risk & Industry Research.
“The Philippine economy is heavily dependent on high employment, especially in the service industry,” BMI said in a report dated Feb. 1.
Latest data from the local statistics agency showed the jobless rate dropped to a record low of 3.6% in November 2023, lower than 4.2% in October and 4.2% seen a year earlier.
The number of unemployed Filipinos decreased by 12.3% to 1.83 million in November from 2.09 million in October, and by 15.8% from 2.18 million in November 2022.
For the first 11 months of 2023, the unemployment rate stood at 4.5%, well below the 5.3%-6.4% target under the Philippine Development Plan.
“Over 2024, we forecast unemployment to average 6.3%, as the labor market loosens slightly. While inflation continues to increase, the main drivers are elevated food and energy costs as opposed to wages,” BMI said.
According to BMI, the strong labor market led to a robust Philippine consumer spending growth in 2022 and 2023, even as elevated inflation dampened gains in incomes.
“However, as major markets and economies slow in 2024, we expect some uptick in unemployment rates across the board,” BMI said, noting that rising joblessness is a risk to the consumer outlook.
“Lower levels of personal savings, previously functioning as an option to support current consumption patterns, will mean that households will have to reorient their purchasing patterns and cut back on their spending (by moving down price points or buying fewer goods at similar spending levels),” it said.
BMI forecasts Philippine household spending to grow by 6.3% from the 5.6% growth recorded in 2023. This is also in line with the firm’s economic growth forecast of 6.2% this year, up from the 5.6% expansion in 2023 but still below the government’s 6.5-7.5% target.
“Spending will remain impacted by the environment of elevated inflationary pressures over 2023 as well as high debt levels, and its servicing costs. However, easing inflation and a tight labor market will support spending, as real wage growth returns to positive territory, supporting purchasing power over the year,” it said.
High levels of household debt may also hurt household spending this year, BMI said.
“A high level of household debt remains a risk to our consumer outlook, as it limits the future availability of debt, but also draws on current disposable income levels, especially as debt servicing costs increase on the back of interest rate increases,” it said.
The BSP raised key policy rates by 450 basis points (bps) from May 2022 to October 2023 to tame inflation, making it the most aggressive central bank in the region. This brought the key rate to 6.5%, the highest in 16 years.
Even though BMI expects policy rate cuts from central banks this year amid easing inflation, borrowing costs may not reach their pre-pandemic lows and households may need to adjust to high interest rates.
“Many households took on significant levels of debt in the previous low interest rate environment,” it said. “The risk to consumer spending is that the cost of servicing this debt at higher interest rates becomes a larger-than-anticipated draw on disposable incomes, to a point where consumers will have to cut back spending, especially in more non-essential segments.”
Consumer spending may also be affected by risks to the remittance outlook this year.
“There is a particular demand for Filipino workers skilled in jobs related to medical and health services, construction and housekeeping… However, we do highlight several risks to this income over 2024, mostly related to the negative impact from the rising inflation across several global markets.”
Based on the latest data from the central bank, cash remittances grew by 2.8% to $2.719 billion in November from $2.644 billion a year earlier. The growth in cash remittances was the slowest annual pace since the 2.6% in September. The amount of money sent home to the Philippines was also the lowest since $2.494 billion in May 2023. — Keisha B. Ta-asan