ANALYSIS: Is the Philippines at risk of stagflation?

In 2013, the World Bank described the Philippines as a “rising tiger,” pointing to its strong economic growth and improving macroeconomic stability.

More than a decade later, the picture is more complicated.

Global price shocks due to the conflict in the Middle East, along with domestic concerns such as the flood control corruption scandal, have slowed economic growth to its weakest level since the COVID-19 pandemic lockdowns while pushing inflation to three-year highs—conditions that economists say resemble early warning signs of stagflation.

What is stagflation?

Stagflation, which comes from the words "stagnation" and "inflation," is defined by the World Economic Forum as a period when slow economic growth coincides with joblessness and rising inflation.

Weaker economic growth usually comes with easing inflation, as consumers spend less and businesses cut prices to attract buyers. This pattern is broken by stagflation, leaving policymakers caught between fighting inflation while supporting growth.

With stagflation, households face slower job creation, weaker incomes, and rising costs.

“Medyo malayo pa tayo. Tsismis pa lang ‘yan [We’re still quite far from that. It’s just speculation for now],” economist Jonathan Ravelas said during a recent media forum.

Ravelas noted, however, that rising prices and elevated joblessness could worsen the country’s vulnerabilities, particularly as he expects inflation to remain elevated this year.

Warning signs

The Philippine economy—as measured by the gross domestic product (GDP)—grew by 2.8% in the first quarter of 2026. This is slower than the 3% in the fourth quarter of 2025, and the 5.4% posted a year ago. It is also the slowest since the 3.8% contraction during the COVID-19 pandemic lockdowns in the first quarter of 2021.

“We recognize that this outcome reflects the combined impact of significant domestic and global challenges,” Department of Economy, Planning, and Development (DepDev) Secretary Arsenio Balisacan said in May, citing the flood control corruption scandal and the Middle East crisis.

The Development Budget Coordination Committee (DBCC), made up of the country’s economic team, last December set a full-year target range of 5.0% to 6.0%, which Balisacan said would be downgraded to reflect the current economic conditions.

A number of multilateral agencies have already cut their growth projections, signaling that the Philippines would miss this target: the Asian Development Bank lowered its projection to 4.4% (from 5.3%); the International Monetary Fund (IMF) to 4.1% (from 5.6%); and the World Bank to 3.7% (from 5.3%).

Should the Philippines fail to meet its growth target in 2026, it will the fourth straight year to have done so. Economic growth stood at 4.4% in 2025, below the 5.5% to 6.5% target range. Growth hit 5.6% in 2024, below the 6.0%–6.5% goal; and 5.5% in 2023, lower than the 6.0%–7.0% target.

For Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), the Philippines is “technically not yet in stagnation, but the risk of stagflation would be felt by weaker business and industries.”

“If GDP slows down further close to zero, that is the most important economic indicator on risk of stagflation, amid inflation could average 6%-7% on a base case scenario and could even be higher if the Strait of Hormuz remains closed for a longer time period,” he said in a mobile message.

Higher prices

Consumer prices grew by 7.2% in April, faster than the 4.1% in March, and 1.4% a year ago. This is the fastest inflation print since the 7.6% logged in March 2023, and above the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% target range.

“Growth is slowing while inflation remains exposed to supply shocks, especially from energy and food, but conditions do not yet amount to stagflation,” SM Investments Corp. (SMIC) group economist Robert Dan Roces said in a separate mobile message.

“At this stage, the Philippines would likely rank around 2 out of 5 on a stagflation risk scale. Some warning signs have started to appear, particularly elevated oil prices, peso weakness, and softer sentiment in parts of the economy, but the broader markers of true stagflation remain absent,” he added.

National statistician Claire Dennis Mapa attributed April’s inflation print to the faster hike in the price of food and non-alcoholic beverages; transport; and housing, water, electricity, gas, and other fuels.

The Philippines, a net importer of fuel, has been in a state of national energy emergency since March due to the ongoing conflict in the Middle East.

Fuel prices have surged since the US and Israel's attacks on Iran have led the Islamic republic to counterattack regional allies and close the Strait of Hormuz, a major shipping route that carries a fifth of the world’s oil.

Unemployment

There were 2.58 million jobless Filipinos in March out of the 51.65 million in the labor force, translating to a 4.99% unemployment rate. This means that 50 in 1,000 individuals aged 15 and above did not have jobs or livelihood during the period.

While the latest unemployment rate is an improvement from the 5.1% in February, and the 12.3% a year ago, this brought the year-to-date average to 5.3%, above the government’s ceiling of 4% to 5% for 2026 to 2028.

There were 49.07 million employed Filipinos during the month, equivalent to an employment rate of 95%, lower than the 96.1% a year ago, but slightly higher than the 94.9% in February.

Out of those employed, 6.03 million expressed the desire to have additional hours of work in their present job, take on an additional job, or find a new job with longer hours of work. This translated to an underemployment rate of 12.3%.

The latest data brought the “Misery Rate”—the combination of inflation and unemployment used to measure economic hardship—to 9.09% in March, the highest in close to two years since it was recorded at 9.15% in July 2024.

While economists agree that the Philippines is not in stagflation, at least not yet, they continue to warn that risks could rise if higher prices persist, and confidence continues to wane.

“The economy still has buffers from remittances, infrastructure activity, and a healthy banking system, but if these pressures spread more broadly into wages, pricing behavior, and inflation expectations, the risk level could rise faster,” SMIC’s Roces said. — BM, GMA News