By Aubrey Rose A. Inosante, Reporter
THE ASIAN Development Bank (ADB) said household consumption in the Philippines is likely to rebound in 2026 on the back of easing inflation and interest rates, after a corruption scandal and adverse weather dampened spending in recent months.
However, analysts warned that depending on tax relief to spur consumption could undermine fiscal consolidation efforts.
ADB Country Director for the Philippines Andrew Jeffries said household final consumption expenditure, which accounts for over 70% of the economy, is expected to “strengthen in 2026 amid low inflation and accommodative monetary policy.”
“More broadly, policies need to focus on raising incomes and reducing vulnerability,” he said in an e-mailed statement to BusinessWorld.
Mr. Jeffries said these measures should include expanding higher‑quality employment, boosting productivity through skills upgrading, and targeted social protection for vulnerable households.
This comes as private consumption growth moderated in the third quarter of 2025, particularly discretionary spending on recreation, hotels and restaurants, partly due to weather‑related disruptions, he said.
Data from the Philippine Statistics Authority (PSA) showed household final consumption expenditure slowed to 4.1% in the third quarter from 5.2% a year ago.
This was the slowest since the 4.8% contraction in the first quarter of 2021. Excluding pandemic years, it was the slowest growth in private spending since the 2.6% increase in the third quarter of 2010.
The PSA will release the fourth-quarter and annual 2025 preliminary gross domestic product (GDP) data, including household consumption, on Jan. 29.
Despite the slower growth in the third quarter, the ADB said spending on essentials, particularly food, remained resilient, supported by low inflation.
Inflation picked up to 1.8% in December from 1.5% in November. This brought the average to 1.7% in 2025.
For 2026, the central bank sees inflation accelerating to 3.2%, but still within the 2-4% target band.
The Bangko Sentral ng Pilipinas (BSP) has so far delivered a total of 200 bps in cuts since August 2024, after it lowered its policy rate by 25 bps to an over three-year low of 4.5% at its Dec. 11 meeting, amid subdued inflation and sluggish growth.
The Monetary Board is scheduled to hold six regular policy meetings in 2026, with the first one set on Feb. 19.
TAX RELIEF?To spur household demand and ease public concerns over flood control issues, a lawmaker had proposed giving tax relief to Filipinos, but analysts were divided, saying the measure could lift spending but risk undermining fiscal consolidation.
Senator Erwin T. Tulfo filed a bill in the Senate in October to provide a one-time, one-month income tax holiday for individual taxpayers receiving compensation income, effective on the first payroll month immediately following the bill’s approval.
Senate Bill No. 1446, or the One-Month Tax Holiday bill, remains pending at the committee level.
“A tax relief will only delay fiscal consolidation,” Foundation for Economic Freedom President Calixto V. Chikiamco told BusinessWorld on Tuesday.
The Marcos administration aims to bring the deficit down to P1.56 trillion, or 5.5% of GDP, in 2025, and eventually to P1.55 trillion, or 4.3% of GDP, in 2028.
Mr. Chikiamco noted that many factors influence consumer spending, such as unemployment, inflation, and wage growth.
“Depreciation of the peso will increase OFW (overseas Filipino worker) incomes and spur consumer spending without decreasing government revenues,” he added.
The peso has breached the P59-a-dollar mark several times since November and sank to a record low of P59.22 on Dec. 9.
Meanwhile, Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., argued that tax relief can boost private consumption, but the program has to be “smart and targeted.”
“Tax relief can help revive spending, especially after a year of high prices and tight budgets,” he said.
“Focus on essentials like VAT (value-added tax) breaks on food and utilities, and give relief to lower- and middle-income families who are more likely to spend,” Mr. Ravelas added.
However, he said tax relief must be “time-bound,” and paired with job creation and price stability, so people feel confident to open their wallets.
“The problem on spending is due to the uncertain environment due to ‘floodgate,’ the government should fix its trust issues so confidence will come back,” Mr. Ravelas said, referring to the flood control mess.
Meanwhile, the ADB’s Mr. Jeffries said improving VAT efficiency and sustaining gains in tax administration through digitalization are key to raising government revenue.
“The proposed tax on single-use plastic bags is a notable measure, serving both revenue and environmental objectives by helping address plastic and solid-waste challenges,” he said.
BIR Commissioner Charlito Martin R. Mendoza earlier said the proposed tax measure is projected to generate between P6 billion and P10 billion annually, “depending on the rate and coverage.”
“Beyond taxation, sustained improvements in expenditure efficiency and public financial management are crucial, particularly to strengthen investment planning, project execution, and governance,” Mr. Jeffries said.
