PH seen to take heavy beating from Iran war
The energy shock set off by the ongoing war in the Middle East is expected to dampen economic growth recovery in the Philippines, as consumer spending could take a hit, analysts warned.
In a commentary, economists at Citi Research said the geopolitical conflict could weigh on consumption on several fronts—from the risk of softer remittances from the Middle East, which hosts over 2 million overseas Filipinos, to higher inflation that could erode consumers’ purchasing power.
Weaker consumer demand, in turn, could also hurt businesses such as malls and other retailers, which may see fewer shoppers after the government introduced a four-day workweek scheme aimed at cutting fuel consumption.
Citi said these developments could disrupt the country’s economic rebound, which remains in the “very early stages” after a high-profile corruption scandal had rattled confidence.
Gross domestic product expanded just 4.4 percent last year, missing the government’s target and falling short of market expectations.
For now, Citi still expects average inflation this year to remain within the 2-percent to 4-percent target range of the Bangko Sentral ng Pilipinas (BSP). However, it warned that price hikes could approach the upper end of that band in April as the conflict in the oil-rich region continues.
“The ongoing oil shock presents a headwind for the recovery,” the bank’s economists said. “The resilience of household purchasing power will also be tested given the hike increase in fuel prices.”
Global financial markets opened the week in turmoil after crude prices surged past $100 a barrel amid escalating attacks between the United States-Israel alliance and Iran.
Tehran retaliated by striking Middle Eastern neighbors hosting American troops, and by restricting traffic in the Strait of Hormuz, a critical shipping lane for global oil exports.
World oil prices have since fallen amid talks of potential release of emergency stocks.
At home, some oil companies have agreed to stagger the increases of pump prices.
Monetary policy
Already, BSP Governor Eli Remolona Jr. warned that the central bank could reverse course and raise interest rates if global oil prices stay above $100 a barrel for a long period and the US dollar continues its rally. Both developments, he said, could push inflation beyond the central bank’s target range.
For Citi, the BSP may defer any additional interest rate cuts, though it did not rule out the possibility of “a shallow hiking cycle” if oil prices stay elevated.
John Paolo Rivera, senior research fellow at the Philippine Institute of Development Studies, said that while risks are still relatively manageable at this stage, the country must prepare for the worst.
“Unless oil prices remain elevated for a prolonged period and significantly erode purchasing power, the economy is more likely to face temporary inflation pressure rather than a sustained stagflationary environment,” Rivera said.
He said higher energy costs could push inflation expectations, making BSP more cautious about continuing its monetary easing cycle and may shift toward a pause.
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