An official of the Department of Finance (DoF) said that the Philippines could achieve the lower end of the gross domestic product (GDP) target this year at 6 percent as the country banks on increased household consumption and government spending.

During the Economic Journalists Association of the Philippines’ business journalism seminar over the weekend, Finance Undersecretary and chief economist Domini Velasquez revealed that the government is likewise expecting a stronger economic performance later this year due to job market stability and a potential increase in wages.

While inflation has dampened spending, a stabilizing job market with lower underemployment rates suggests Filipinos will have more disposable income to spend.

The country’s headline inflation, based on recent data from the Philippine Statistics Authority (PSA), settled at 3.8 percent in April this year, tamer compared to the 6.6 percent recorded in the same month last year, but slightly higher than the 3.7 percent in March this year.

On the other hand, 49.15 million Filipinos are currently employed, a significant increase from February 2024, which recorded 48.95 million employed Filipinos, based on PSA data.

“(Household) consumption grew by about 4.6 percent, which is generally considered low in a high inflation environment,” Velasquez maintained, on the back of a 1.7 percent year-on-year increase in government outlays as fiscal consolidation efforts constrained spending.

“However, with inflation expected to stabilize and more Filipinos having full-time jobs, we believe consumption will increase significantly in the coming quarters,” she added.

Despite this, Velasquez acknowledged the potential headwinds caused by high interest rates as the Bangko Sentral ng Pilipinas’ Monetary Board maintained its key policy rate at 6.5 percent during a rate-setting meeting on Thursday.

The key policy rate influences the interest rates that banks charge to consumers, meaning the interest the consumers have to pay on their loans with the bank.

The Finance Undersecretary mentioned that borrowing costs can discourage companies from borrowing and spending to expand their businesses from expanding, leading to slower growth on the back of a decrease in the prices of goods and services.

However, Velasquez argues that the benefits of higher interest rates outweigh the drawbacks.

“While higher interest rates might lead to slower business expansion, they also incentivize saving, which reduces money circulating in the economy and helps control inflation,” Velasquez explained.

The government is projecting a growth rate of around 6.1 percent for the next few quarters to achieve the full-year target.