THE Philippine economy is facing mounting pressure from elevated inflation, weak growth and the prolonged Middle East war but has not fallen into stagflation, the University of Asia and the Pacific (UA&P) said.
“Despite negative commentary from some analysts, the Philippine economy is not in stagflation mode,” UA&P economists said in the university’s latest Market Call report.
Stagflation is an economic condition characterized by slow economic growth, rising inflation and high unemployment. Philippine economic growth slumped to 2.8 percent in the first quarter while inflation spiked to 7.2 percent in April, both breaching official targets.
Unemployment, meanwhile, edged down to 5.0 percent in March — the lowest so far this year — but was higher compared to the year-earlier 3.9 percent.
“Inflation, while elevated, will continually trek downwards after a peace deal gets signed, and growth will return when infrastructure spending resumes along with consumer and business confidence,” the UA&P economists said.
They argued that the economy was continuing to show signs of resilience through steady employment conditions, sustained remittance inflows, strong export performance and expectations of an infrastructure spending recovery — factors suggesting that the country is experiencing a slowdown rather than a full-blown stagflation scenario.
The economists said that an unresolved flood control scandal and high oil prices would continue to weigh on growth in the first half as “flip-flopping US-Iran talks may keep fuel prices elevated, hitting the Philippines harder than its Asean peers.”
Second-round effects from the energy shock were also seen lifting inflation further above target for the rest of the year. The economists said inflation could hit double-digits “due to base and second-round effects creeping into succeeding inflation readings.”
“Compared with regional peers, the country remains more exposed to sustained oil shocks, which could push inflation above BSP’s (Bangko Sentral ng Pilipinas) estimate,” they noted.
However, growth is expected to recover in the second half to around 5.0 percent due to base effects and ramp up in infrastructure spending.
The UA&P economists expect the BSP to continue tightening monetary policy, projecting at least 75 basis points of additional rate hikes this year after a 25-basis increase in April.
