MANILA, Philippines – The Philippine economy is unlikely to fall into full-blown stagflation as a rebound in infrastructure spending is seen keeping growth in positive territory in the second half of the year, according to economists at the University of Asia and the Pacific (UA&P).
In their latest “The Market Call,” UA&P economists said growth could recover to around 5 percent in the second half on the back of increased government spending, while inflation is expected to remain elevated but will likely not reach double-digit levels.
Fears of stagflation have been simmering after first-quarter economic growth slowed sharply to 2.8 percent, while inflation accelerated to 7.2 percent in April. Unemployment, meanwhile, eased to 5 percent, though still high.
But for UA&P economists, such concerns are still premature.
“Despite negative commentary from some analysts, the Philippine economy is not in stagflation mode. Inflation, while elevated, will continually trek downwards after a [Middle East] peace deal gets signed, and growth will return when infrastructure spending resumes along with consumer and business confidence,” the economists said.
They said the domestic economy continues to be supported by “steady household consumption, a healthy labor market, and sustained remittance inflows.”
UA&P cited March exports surging 20.4 percent year-on-year to a record $8.2 billion, as well as remittances from overseas Filipino workers (OFWs) rising 2.8 percent to $2.9 billion.
Government spending likewise increased 5.2 percent to P654.8 billion. According to the economists, an acceleration in infrastructure spending would support construction activity, job creation and broader domestic demand.
“Some constructive forces for the economy include the much-awaited return of infrastructure spending, resilient employment conditions, continued domestic liquidity, weaker-peso boosted OFW remittances and good export performance,” the economists said.
“[This is] alongside attractive equity risk premiums suggesting that the economy is slowing rather than entering full-blown stagflation,” they added.
But labor under pressure
Still, the economists acknowledged that labor market conditions may “see more stress in the coming months” as the energy shock triggered by the Middle East conflict continues to weigh on the economy.
“Weakening business sentiment and scaled down expansion plans could continue weighing on job formation. Despite this, targeted subsidies for heavily affected sectors and resilient job metrics may cushion the fall,” they said.
UA&P also expects the Bangko Sentral ng Pilipinas (BSP) to deliver another 75 basis points worth of rate hikes this year, bringing the benchmark policy rate to 5.25 percent.
“BSP took on a more hawkish tone because of above-estimate inflation, raising rates and its inflation forecast to 6.3 percent for 2026,” the economists said.
