Hongkong and Shanghai Banking Corporation (HSBC) has cautioned that the Philippines is increasingly showing signs of stagflation as soaring oil prices and supply disruptions stemming from the Middle East conflict continue to fuel inflation.

In a recent advisory, Aris Dacanay, senior ASEAN economist at HSBC, said the three-year-high 7.2-percent inflation rate recorded in April, combined with the third consecutive quarter of slowing gross domestic product (GDP) growth, indicates that stagflationary pressures are beginning to take hold.

Effects of shocks already apparent

“The medium-term effects of the growth and inflation shocks are already apparent. All told, stagflation in the Philippines has taken shape,” he said.

Stagflation is an economic condition characterized by the simultaneous occurrence of slow economic growth, high unemployment, and rapidly rising prices.

Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio Balisacan last week pushed back against the stagflation narrative.

“[A]lthough we saw slow economic growth [over the past three quarters], I think we are moving away from that. And we have learned our lessons,” he said.

“Unemployment still hasn’t reached the highs of the past, and we are seeing improvements in job quality over the last three years,” he added.

Despite unemployment easing to 5.0 percent in March, the figure remains 1.1 percentage points higher than the same period a year ago.

Projections shifting closer to adverse scenario

Meanwhile, Dacanay said the bank’s projections have shifted closer to its “adverse scenario” assumptions, which factor in a prolonged and more severe impact from the crisis in the Middle East.

“For the Philippines — being a relatively vulnerable economy amid an energy shock — the ‘adverse’ scenario is merging with reality,” he said.

HSBC now expects Philippine GDP growth to slow to 3.4 percent this year, sharply lower than its previous forecast of 4.6 percent. Growth for 2027 was likewise downgraded to 4.6 percent from 5.3 percent.

Weaker outlook

The weaker outlook follows the economy’s 2.8-percent expansion in the first quarter of 2026, the slowest pace since the pandemic-era contraction in 2021, which the government attributed to persistent effects of the energy crisis as well as lingering fallout from the ongoing flood control scandal.

At the same time, HSBC raised its inflation outlook, citing persistent energy and food supply pressures tied to the conflict and disruptions in global shipping routes.