Stagflation has landed

Stagflation has landed | Daily Tribune

The numbers, stripped of diplomacy, are damning. gross domestic product (GDP) growth slowed for a third consecutive quarter, with the economy expanding just 2.8 percent year-on-year in the first quarter, down from 3 percent in the previous quarter.

Barring the pandemic collapse of 2020 to 2021, it was the weakest three-month reading since 2009, and the worst in the Association of Southeast Asian Nations (ASEAN).

The CPBRD benchmarked this against a conservative post-pandemic norm of 4.5 to 5.5 percent, and found the economy falling alarmingly short. What makes this worse is that the deceleration had started before the Middle East tension blew up. Thus, the oil shock didn’t start the fire; it poured fuel on one that was already burning.

The trajectory of prices is equally grim. Inflation crept upward even before the Strait of Hormuz was closed, rising from a trough of 1.5 percent in November 2025 to 2.4 percent in February 2026.

Then the energy shock hit. Inflation surged from 4.1 percent in March to 7.2 percent in April, the highest reading since 2023, as the Philippines, which imports 98 percent of its oil from the Middle East, absorbed the full force of the supply disruption.

By May, it had eased only marginally to 6.8 percent, still nearly triple the BSP’s target midpoint and showing no signs of structural retreat.

The labor market compounds the misery. The unemployment rate rose from 4.4 percent in December 2025 to 5 percent in March 2026, while core inflation climbed to 3.9 percent.

The CPBRD noted that unemployment breached the recession threshold that economists observed in late 2025, while the April data showed a parallel 2.9 percent spike in underemployment. Filipinos aren’t just losing jobs; many are clinging to inadequate ones.

An oil shock shifts the supply curve inward: output contracts, prices rise and the labor market softens simultaneously.

The report’s most pointed contribution is its systematic dismantling of every conventional policy tool the Marcos administration might use.

Fixed investment contracted for a second consecutive quarter, with private consumption accounting for roughly 80 percent of total GDP growth, at its weakest since the Covid period.

Pumping more government spending into this environment would bid up prices without meaningfully expanding supply. Worse, the fiscal deficit is projected to widen from 5.6 percent of GDP in 2025 to 6.1 percent in 2026, constraining the government’s room to maneuver.

The CPBRD’s own indicators suggest the fiscal multiplier for the Philippines is close to zero — and negative in subsequent quarters. Every peso spent may generate less than a peso in economic activity.

Restrictive monetary policy? The BSP raised its policy rate by 25 basis points to 4.5 percent in April 2026, with further tightening expected. But rate hikes carry their own poison: a heavily indebted sovereign raising rates diverts more of its budget to debt servicing, crowds out private borrowing, and chills entrepreneurial activity. The cure risks being worse than the disease.

Whether an administration already battered by a flood control corruption scandal and a Senate leadership crisis has the political bandwidth or the political will to sell that message to 115 million Filipinos is a separate question.

The CPBRD has identified the illness, but the harder work of administering a remedy has barely begun.