NEWS this week in the Philippines has been dominated by the efforts of the opposition Duterte faction in the Senate to prevent the arrest of senator and former Philippine National Police chief Ronald dela Rosa on a warrant issued by the International Criminal Court (ICC) for crimes against humanity. These efforts, which began with a leadership coup that replaced Sen. Vicente Sotto III with Sen. Alan Peter Cayetano as Senate president, have been successful so far and have been helped in no small measure by the utterly hapless and contradictory response to the crisis by President Ferdinand Marcos Jr.’s administration, all of which has drawn unwanted international attention to the Philippines’ political follies.
The most worrisome consequence of the ongoing political drama is the damaging and perhaps in some cases, even deadly effect it will have on the Filipino people. That has nothing to do with presumptions of Dela Rosa’s guilt or innocence, or the legitimacy of the ICC case against him, or whether or not the renegade Senate leadership has acted appropriately in protecting him. Rather, it is the inescapable reality that every moment our government leaders spend on this matter, as well as the may-or-may-not-happen impeachment of Vice President Sara Duterte, is another moment lost to addressing the critical and deteriorating state of the economy and the public well-being.
An economic outlook offered on Thursday by global banking giant HSBC was a stark warning that one of the most difficult conditions for any economy to overcome — a convergence of factors known as “stagflation” — has already taken hold in the Philippines. This is largely the result of the ongoing war against Iran, but also increasingly attributable to adverse and worsening climactic conditions, and of course, the dangerous distraction of growing political instability in the country.
Every major institutional or private sector analyst has already lowered economic forecasts for this year, but HSBC’s downward revision was the most severe yet. From its earlier forecast of 4.6-percent gross domestic product (GDP) growth for this year, HSBC lowered it to 3.4 percent. For 2027, the GDP growth forecast was lowered to 4.1 percent from 4.8 percent previously. HSBC also sees inflation being sharply higher than in its earlier estimates, doubling its 2026 projection to 6.6 percent from 3.3 percent and raising the 2027 forecast to 4.4 percent from 3.5 percent earlier.
The reason for these dire changes is that HSBC now sees what it previously termed an “adverse scenario” of stagflation taking effect in the Philippines. Stagflation is a condition in which three factors occur simultaneously: slow economic growth, high unemployment and high inflation. Currently, two of these factors are clearly in place, with GDP growth registering a five-year low at 2.9 percent in the first quarter of the year and inflation hitting 7.2 percent. Unemployment is hovering around 5.0 percent, which may not be considered catastrophic, but HSBC pointed out that a modest decline in unemployment in April was offset by a substantial increase in underemployment, which essentially has the same effect on the economy.
What makes stagflation dangerous and difficult to correct is that addressing one of the three problems almost always makes one or both of the others worse. For example, trying to spur growth through consumption by raising wages increases inflation, a condition called a wage-price spiral. Conversely, curbing inflation by raising benchmark interests reduces spending, including investment in hiring, increasing unemployment and slowing growth.
The only way to break a stagflation condition is for all three negative factors to be addressed together, and this is where the distracted Senate is failing the Filipino people. The Bangko Sentral ng Pilipinas (BSP) can do its part to manage inflation with monetary policy tools and some interventions to bolster the weakened peso, but unless the executive and the legislature cooperate with measures to shore up job growth, consumption spending and investment, the BSP’s efforts will be wasted.
The situation is going to get worse before it gets better. Not only is the country facing extreme pressure to trade, food and energy security as a result of the war, three consecutive days of critically low power supplies this week were a warning that we are staring down the barrel of a drought-inducing El Niño, possibly a severe one. None of what the Senate is doing right now addresses badly needed energy reform, fiscal support for economically disadvantaged sectors or structural reforms to boost agricultural output growth, improved health care, water security or investment in critical infrastructure and industry.
