Filipino consumers are redirecting their spending away from essential goods and services towards nonessential items, a trend that aligns with the Philippines' progression towards an "upper-middle income" economy, according to HSBC Global Research.
In a report dated May 30, HSBC highlighted a "substantial deceleration" in the average growth of spending on food, clothing, and household furnishings in 2023. While the drop in household furnishing expenditure was anticipated due to high-interest rates impacting renovation plans typically financed through credit, the reduced demand for food and clothing came as a surprise.
Contrastingly, there has been more than a 10 percent increase in consumer spending on restaurants, hotels, recreational goods, toys, instruments, books, and services like gyms. Transportation, which includes both essential and nonessential expenses, is also experiencing double-digit growth, according to HSBC.
Economic Transition and Consumer Behavior
Aris Dacanay, an economist at HSBC, noted that this shift in consumer preferences aligns with the Philippines' journey towards becoming an upper-middle income economy.
“Even in challenging times, the Filipino consumer has moved beyond covering basic necessities and is now investing in goods and services that enhance daily convenience and enjoyment,” Dacanay said.
He added, “This trend suggests that as inflation decreases, overall household consumption will likely increase, particularly in areas beyond mere subsistence—essentially, the nicer things.”
Positive Outlook for Economic Growth
This outlook is promising for the Philippines, where consumer spending constitutes over 70 percent of the gross domestic product. Despite the overall growth of household spending easing to 4.6 percent in the first quarter—the weakest since the 4.8 percent contraction during the peak of the COVID-19 pandemic in the first quarter of 2021—there is optimism that consumer spending will rebound, particularly in nonessential categories.
