GDP growth may slow further as price pressures mount

PHILIPPINE ECONOMIC GROWTH this year could slump to its slowest in nearly two decades as price pressures from the energy crisis compound already muted household spending and investments.

In a report published on Monday, Oxford Economics slashed its Philippine gross domestic product (GDP) growth forecast to 3.5% from its already downgraded 4.6% estimate. Before the war, it expected the economy to expand by 5.5%.

If realized, this would mark the economy’s worst performance since 2020, when it contracted by 9.5%. Counting out the pandemic, it would be the slowest growth in 17 years or since 1.4% in 2009.

This would also mean that the government will miss its GDP growth target for a fourth straight year, as it sees the economy expanding between 5% and 6% in 2026. The Philippine economy grew by 4.4% in 2025 — a post-pandemic low as a graft scandal involving government infrastructure projects dragged public spending.

“The largest downgrade since the start of the war has so far been the Philippines after the recent Q1 GDP release, which was poorer than expected,” Oxford Economics Lead Economist Maya Senussi said.

GDP growth was at 2.8% in the first quarter, slowing further from 3% in the fourth quarter and 5.4% in the same period last year. This was likewise slower than the 3.4% median estimate in a BusinessWorld poll of 21 economists.

Ms. Senussi said the weak growth was due to already subdued consumer spending and the weak investment climate in the country prior to the Middle East war.

“We expect this softness to continue, as we believe poor consumer sentiment and materially higher prices will weigh on private spending,” she added. “Limited fiscal space constraints the extent of budgetary support.”

For his part, BDO Capital and Investment Corp. President Eduardo V. Francisco said on Money Talks with Cathy Yang on One News on Tuesday that Philippine GDP growth could slow to 2.2% this year due to rising price pressures and investment woes.

“We’re seeing consumption spending go down, even for the very important day-to-day goods, with rice and corn prices I think going up 10-20%. That is bad, and we hope it won’t get worse, because that could mean that the large corporates will realign again further and push back their investments,” he said.

Compared to past crises, the economy is on fragile footing as traditional growth drivers have weakened, Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said via Viber.

“Vaunted household spending is sputtering, holding true to our description of a ‘tired consumer.’ After years of an unprecedented debt build, consumers grapple with debt management against a backdrop of rising prices. Government spending, a pillar of the economy that was shaken by a corruption scandal, is also absent as authorities attempt to clean up their ranks. Lastly, capital formation now suffers from years of underinvestment…,” Mr. Mapa said.

Oxford Economics raised its inflation forecast for the Philippines to 6.5% for this year from 2.5% prior to the energy crisis.

“Compared to the prewar baseline at the end of February, we’re expecting inflation to be substantially higher in the Philippines, Thailand, and Vietnam,” Ms. Senussi said.

“Unlike other emerging markets, the Philippines has no fuel subsidy in place and is hence the most exposed within the region to fuel price shocks given its high import intensity.”

Philippine headline inflation accelerated to an over three-year high of 7.2% in April from 4.1% in March and 1.4% in the same month last year.

This exceeded the Bangko Sentral ng Pilipinas’ (BSP) 5.6%-6.4% estimate for the month and the 5.5% median estimate in a BusinessWorld poll of 17 analysts.

The BSP sees inflation averaging 6.3% this year, well above its 2%-4% tolerance band, as the conflict continues to push up domestic fuel, transport, and food prices.

Ms. Senussi said the Philippines’ heavy reliance on oil imports makes more exposed to energy shocks. The country sources over 90% of its oil from the Middle East.

Moody’s Ratings also said in a May 11 report that the low energy stock of Asia-Pacific countries including the Philippines amplifies the region’s high vulnerability to the crisis.

According to the Department of Energy, the country has about 50.70 days’ worth of fuel stockpile as of May 8. This was slightly lower than the 54 days reported as of April 24.

SHALLOW TIGHTENING
But even as inflation risks grow, Metrobank’s Mr. Mapa expects the BSP’s tightening stance to remain “shallow” as it strikes a balance between controlling soaring prices and helping the economy recover.

“With the inflation path heading higher, we’ve seen renewed calls to push rates to non-normal levels to catch up supposedly with the curve,” he said. “BSP we feel, however, will look to balance signaling it is still an inflation-targeting monetary authority while also ensuring it doesn’t end up throwing out the economic baby with the bath water.”

“The central bank’s primary mandate is for price stability. Some will focus solely on this mantra without realizing that the full mandate highlights that the overarching goal of low and stable prices is chased in order to help achieve sustainable growth,” he added. “Thus, we believe BSP’s tightening cycle will come swift but remain shallow as it signals its intent to manage expectations while also ensuring it doesn’t snuff out whatever is left of fast-fading growth momentum.”

The BSP last month delivered its first hike since October 2023, lifting the policy rate by 25 basis points to 4.5% as a preemptive move to keep inflation expectations anchored and prevent broader second-order effects.

BSP Governor Eli M. Remolona, Jr. has also left the door open to tightening further through “a succession of modest rate hikes” to bring inflation back to their 2%-4% tolerance band.

BDO Capital’s Mr. Francisco added that despite faster inflation and weak growth, he does not expect a stagflation scenario as public and private spending are likely to remain resilient, supported by corporates and small businesses.

Lending growth and asset quality have also stayed robust, he added.

He said it’s mostly “business as usual” for corporates despite domestic and external uncertainties.

“What gives me confidence is the fact that we’re very resilient — at least I get my pulse from talking to the corporates. A lot of them are still optimistic. Yes, there are these headwinds, a lot of headwinds. Before it was just the Strait of Hormuz, but now we have this internal political strike. But we know how to survive,” Mr. Francisco said.

“I guess the key there is that regardless of administration, we succeeded. We know how to trudge along and get things done. So, whatever happens in politics is fine. But at least as far as day-to-day lives of the Filipino, we’re strong and I think we’ll get over that. And I’m seeing that when talking to the clients.” — Katherine K. Chan with a report from A.M.C. Sy