The ASEAN+3 Macroeconomic Research Office (AMRO) has warned that stagflationary pressures could emerge across the region if the Middle East conflict drags on.
“In an adverse scenario in which Brent averages USD125 per barrel in 2026, alongside broader and more prolonged disruptions to key industrial inputs, regional growth could fall to 2.5 percent in 2026, while inflation would rise to 3.5 percent,” the organization said in its June update of the ASEAN+3 Regional Economic Outlook.
Economic condition characterized by low growth
Stagflation is an economic condition characterized by low growth, high inflation, and elevated unemployment occurring simultaneously.
AMRO noted that under its adverse scenario, inflation would reach its highest level in more than a decade, while growth would slow to its weakest pace since the Asian Financial Crisis, excluding the pandemic years.
Despite the outbreak of the Middle East conflict in March, AMRO reported that the ASEAN+3 region expanded by a solid 4.4 percent in the first quarter, supported by strong private consumption and favorable labor market conditions.
Weak first quarter performance
By contrast, the Philippine economy grew by just 2.8 percent during the same period, marking a third consecutive quarter of slowing growth. Government officials largely attributed the weak first-quarter performance to the broader effects of the national energy emergency, given the country’s heavy reliance on imported fuel.
Inflation likewise surged to 7.2 percent in April, its highest level in three years and four times the end-2025 rate. The Bangko Sentral ng Pilipinas (BSP) expects inflation to settle between 7.1 percent and 7.9 percent in May as spillover effects from the conflict continue to feed into transportation and food costs, alongside the impact of a weaker peso.
Stagflation already beginning to take shape
In a recent advisory, HSBC Senior ASEAN Economist Aris Dacanay said the three-year-high inflation rate recorded in April, coupled with the third straight quarter of slowing gross domestic product (GDP) growth, suggests that stagflation may already be beginning to take shape.
Economy, Planning and Development Secretary Arsenio Balisacan, however, has pushed back against such claims, noting that economic growth had been on an upward trajectory before the flood control scandal erupted last year.
“Unemployment still hasn’t reached the highs of the past, and we are seeing improvements in job quality over the last three years,” he said.
ASEAN economies cautioned
AMRO cautioned that ASEAN economies, including the Philippines, have experienced a more pronounced rise in energy-related inflation. The organization added that tighter financial conditions have increased government bond yields and intensified currency depreciation pressures in some economies, further compounding inflation risks.
The same report saw AMRO cut its Philippine GDP growth forecast for 2026 to 4.1 percent from 5.3 percent previously, while raising its inflation projection to 6.0 percent from 3.9 percent. These were the largest forecast revisions among ASEAN+3 economies, underscoring the Philippines’ vulnerability to the ongoing global energy shock.