Insights & blogs
Sep 19, 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.
Meanwhile, the Philippine economy has regained its spot as one of the fastest growing economies in the region, bouncing back from the challenges of COVID with a growth rate of 5.6% in 2023 and 6% in the 1st half of 2024.
Household consumption continues to be the main engine of the Philippine economy, accounting for 60 to 70% of GDP growth each year. This strong consumption has been fueled by the following:
• Favorable demographics: The country has a young ang growing population, which is expected to reach 115 million by 2025.
• Remittances: The amount of remittances sent by OFWs has grown by 3% so far in 2024 and is expected to reach $34.5 billion by the end of 2024, equivalent to around 8% of GDP. The number of OFWs deployed abroad has exceeded the pre-pandemic level, with 2.3 million deployed in 2023.
• Unemployment rate at record low: The country’s unemployment rate has declined significantly in the past 2 years, even reaching historic lows.
Spending on discretionary items like restaurants and hotels has returned to pre-pandemic level. Consumers have also exhibited their resilience despite grappling with high inflation in the past two years. Household consumption grew by 4.6%in the 1st half of 2024, slower than the pre-pandemic average of 5.9%, but still faster than the growth of consumption in many countries.
Consumer spending may grow at a faster pace in the coming months given the improving outlook for inflation. Constraints in food supply may ease now that El Nino has ended. Aside from consumption, lower inflation has an impact on financial conditions, as this would allow the BSP to cut its policy rate further in the next 12 months.
While significant uncertainties remain, the country may maintain its position as one of the fastest growing economies in the region with a full year growth rate of 6.1% in 2024.
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