Regional laggard
Not even the most pessimistic economist surveyed by the Inquirer last week predicted that the country’s economic growth would slow further to a disappointing 2.1 percent in the third quarter.
The final figure announced by the Philippine Statistics Authority (PSA) on Monday was well below the consensus forecast of 2.8 percent and undershot the Marcos administration’s already reduced 2026 growth target of 3.5-4.5 percent.
More worryingly, the dismal third-quarter performance marked the fifth consecutive quarter of decelerating growth, the longest streak since 2011.
This further cemented the Philippines’ position as a regional laggard, with Vietnam growing by a sizzling 9.95 percent and Malaysia, Singapore, and Indonesia expanding by well above 5 percent.
Consider the country’s relentless economic downtrend alongside accelerating inflation, which hit 7.8 percent in October—the highest since February 2023—and one inevitably arrives at the uncomfortable conclusion that the Philippines has slipped into the dreaded state of stagflation.
The Marcos administration’s economic managers have stubbornly refused to acknowledge this troubling combination of slowing growth, rising inflation and unemployment. But international institutions have been less reluctant to point out the harsh reality.
Stagflation or slowflation
S&P Global Ratings senior economist Vishrut Rana said the Philippines was growing “substantially below” its trend growth of 5.5 to 6 percent.
“If we think of stagflation as being roughly below growth trend combined with high inflation, then we are in that scenario where there is significantly weak growth and high inflation,” Rana said.
Citi echoed the concern. “An inflation rate of 7.8 percent against the two-to-four-percent target is very high. Meanwhile, the 2.1-percent economic growth is low compared with its historical growth of five to six percent,” said Johanna Chua, Citigroup’s global head of emerging market economics.
“Obviously, by that definition, you can call it stagflation or slowflation,” Chua stressed.
The prospect of stagflation keeps economists up at night as it squeezes households and businesses from both ends.
High commodity prices and elevated borrowing costs dampen consumption, a key driver of the Philippine economy, while discouraging business expansion.
The Bangko Sentral ng Pilipinas (BSP), for instance, felt it had no choice but to deliver a surprise jumbo increase in its policy rate to 5.5 percent last month to rein in inflation, bringing cumulative increases since April this year to 125 basis points.
Lack of urgency
Higher borrowing costs, however, make it more expensive for Filipinos to finance businesses, homes, cars, and basic expenses. This helps explain rising past-due bank loans, corporate reluctance to pursue aggressive expansion, and the closure of numerous small businesses.
Inflation has yet to peak, with energy and food prices remaining stubbornly high and likely to stay there given the intensifying El Niño phenomenon that will surely cause the further contraction of the agriculture sector.
The BSP may therefore raise rates again in December, even at the risk of further weighing on an economy already losing momentum.
The economic managers’ apparent reluctance to confront stagflation head-on partly explains the seeming lack of urgency in developing immediate and effective measures to reverse the growth slowdown.
Admittedly, persistently high inflation can be largely attributed to the prolonged Middle East conflict, which has driven up oil, transport, and commodity prices. But the growth slowdown cannot be blamed on external factors alone.
Much of it can be squarely blamed on persistent problems well within the government’s ability to solve, particularly chronic underspending on infrastructure projects that could stimulate economic activity while laying the groundwork for future growth.
Infrastructure spending
PSA data showed infrastructure spending contracted for the sixth consecutive quarter, declining by 15.1 percent, although this was less severe than the previous quarter’s 33.4-percent drop.
Frontline agencies such as the Department of Public Works and Highways are understandably trying to clean up their ranks following the massive flood control corruption scandal that erupted in July last year. But sluggish spending has gone on long enough.
Government paralysis is causing damage of its own. The Marcos administration must at least rally agencies to accelerate infrastructure spending to give the sluggish economy a much-needed boost and Filipinos hope that better days lay ahead.
Faster spending would also signal to local and foreign investors that the government is on top of the difficult situation and is prepared with the right tools and strategies to weather the perfect storm of economic challenges and restore the country to a sustainable growth path.
Otherwise, the Philippines risks falling even further behind its neighbors, many of which have managed to forge ahead despite facing similar headwinds.
