THE Philippine economy is facing increasing headwinds from the Middle East war, the University of Asia and the Pacific (UA&P) said, with inflation likely to soar higher this month and dampen growth.
“The global impact of the Middle East conflict resulting in slower growth and higher inflation has similar, even magnified effects on the Philippine economy,” the UA&P said in the latest edition of its Market Call report.
UA&P economists said inflation, which hit 4.1 percent in March and topped the Bangko Sentral ng Pilipinas (BSP) 2.0- to 4.0-percent target range in March, was likely to exceed 5.0 percent this month due to second-round effects from earlier fuel price spikes.
They noted that the BSP had raised its full-year inflation forecast to 5.1 percent with upward price pressures likely to be sustained over the medium term.
The central bank has signaled openness to further tightening, with markets pricing in a 25-basis-point rate hike during this Thursday’s policy meeting, a move the UA&P economists said was likely given the BSP’s more hawkish tone.
“There is now more than a 50-percent chance for BSP to hike by 25 bps (basis points) in its April meeting to anchor inflation expectations and give relief to the peso,” the economists said.
“[BSP] Governor [Eli] Remolona [Jr.] sees economic growth recovery in H2 driven by infra spending, but we’re more in favor of holding rates to uphold growth momentum.”
The UA&P maintained a first-quarter gross domestic product (GDP) growth forecast of 3.1 percent, but flagged downside risks as higher inflation, weaker global demand and elevated borrowing costs began to take their toll.
While domestic indicators had pointed to improving conditions prior to the Middle East war — including stronger employment and robust government spending — these gains are expected to be offset by rising price pressures and tighter financial conditions.
“Government spending and employment may pick up, but high inflation and interest rates will limit gains,” the economists said.
“Economic recovery is likely in H2-2026 as government spending rebounds, accelerating once the conflict nears resolution,” they added.
