Consumers are expected to loosen their purse strings in 2024, despite a recent rise in household debt, a report from Fitch Solutions showed.

The latest report from Fitch Solutions unit BMI released on Wednesday showed that the Philippines benefits from a relatively low household debt-to-GDP ratio of around 10.1 percent, lower than many other countries.

A high level of household debt remains a risk to our consumer outlook, as it not only constrains future borrowing capacity but impacts current disposable income levels.

‘Given that the economy has remained fairly resilient thus far, the Bank will be in no hurry to cut rates until price pressures have eased more convincingly.’

“While household debt levels have started to rise with consumer loans to total loans increasing 2.7 percentage points y-o-y to 21.0 percent in Q4 2023, quality of loans is also improving with non-performing loans as a percentage of loans for consumers decreasing 80 (basis points) to 5.8 percent,” BMI said.

Outlook positive

“We hold a positive outlook for consumer spending in the Philippines,” BMI said, projecting an acceleration in real household spending growth to 6.4 percent in 2024. This growth will be supported by easing inflation and a strong labor market.

The report acknowledges some challenges, however. Elevated inflation and existing debt levels, along with related debt servicing costs, will continue to influence spending habits.

Hence, BMI expects the Bangko Sentral ng Pilipinas to leave its benchmark policy rate on hold at 6.50 percent at its upcoming meeting on 27 June.

Inflation edged up from 3.8 percent year-on-year in April to 3.9 percent in May, the highest reading since December 2023.

“Given that the economy has remained fairly resilient thus far, the Bank will be in no hurry to cut rates until price pressures have eased more convincingly,” BMI said.