HSBC downgrades PH economic growth outlook, warns of stagflation

Hongkong and Shanghai Banking Corp. Ltd. (HSBC) has downgraded its Philippine economic growth forecasts for this year and the next while hiking those for inflation, citing uncertainties over the Middle East crisis.

According to HSBC Senior ASEAN Economist Aris Dacanay, Philippine forecasts have been revised to be closer to “adverse” scenario forecasts, which incorporate a more severe, entrenched, and long-lasting impact of the Middle East crisis.

“For the Philippines – being a relatively vulnerable economy amid an energy shock – the 'adverse' scenario is merging with reality,” he said in a research note released on Thursday.

Dacanay said the Philippine gross domestic product (GDP) is expected to grow by 3.4% this year, slower than the earlier expected 4.6%. Growth for 2027 was also downgraded to 4.6% from 5.3%.

The country’s economy grew by 2.8% in the first quarter of the year, the slowest since the 3.8% contraction during the first quarter of 2021 when the COVID-19 lockdowns were still in place.

“Apart from the Hormuz chokepoint affecting the supply of oil, it also affected the supply of fertilizer. This should then take a toll on agricultural yields in H2 2026, exacerbating the effects of the incoming El Niño season and keeping food prices high,” Dacanay said.

“Consequently, higher food prices tend to have broader spillover effects to core CPI and inflation expectations,” he added.

HSBC has also raised its inflation forecast for 2026 to 6.6% from 4.0% previously and for 2027 to 4.4% from 3.2%, both above the Bangko Sentral ng Pilipinas’ 2.0% to 4.0% target range.

Inflation clocked in at 7.2% in April, the fastest since March 2023’s 7.6%, as higher global fuel prices spilled over to food, local petroleum, and utilities costs.

With the latest forecasts, Dacanay said the BSP is expected to raise policy rates by 50 basis points by June, and a total of 150 basis points to 6.0% at the end of the year.

The BSP in April hiked key policy rates by 25 basis points, bringing the target reverse repurchase rate to 4.5%, the overnight deposit rate to 4%, and the overnight lending rate to 5%.

For his part, Department of Economy, Planning, and Development (DepDev) Secretary Arsenio Balisacan said he does not think the country has fallen into stagflation — “I don’t see it that way.”

Stagflation is characterized by simultaneous occurrence of slow or stagnant economic growth, persistent high inflation, and high unemployment. —VAL, GMA News