The Philippines’ stagflation-lite moment

A grim word is beginning to circulate in discussions of the Philippine economy: stagflation. Strictly speaking, the country is not there. Growth has slowed sharply and inflation remains uncomfortable, but unemployment is not too high and output continues to expand.

A better description is less dramatic but still worrying: The Philippines is passing through a stagflation-lite moment.

Classic stagflation combines three ills at once: high inflation, weak or negative real growth and high unemployment.

The Philippine version is milder. Inflation has pinched households; growth has lost momentum; and investment has faltered, but the labor market has not collapsed.

That distinction matters. Misdiagnosing the illness risks prescribing the wrong cure.

Under President Marcos, the economy began with enviable speed and has since slowed to a crawl. Real gross domestic product grew by 7.6 percent in 2022, his first year in office. By the first half of 2026, growth had eased to 2.6 percent, after a 2.8-percent expansion in the first quarter and 2.3 percent in the second.

Inflation, meanwhile, has remained elevated, while unemployment has stayed comparatively contained. This is not the misery of the 1970s, but neither is it a picture of robust, confidence-building expansion.

A feasible plan, not slogans

There is still time to alter the trajectory, but not much. Mr. Marcos has less than two years before he leaves office on June 30, 2028. His administration can still finish with credibility, but only if it abandons business as usual.

The task is not merely to announce programs but to restore confidence among households, firms, investors, local governments, Congress and the Bangko Sentral ng Pilipinas.

Some headwinds are beyond Malacañang’s control.

• Geopolitical shocks and supply disruptions: Wars and instability abroad can lift oil, fertilizer and food prices, feeding quickly into Philippine transport and agricultural costs.
• A weaker world economy: Slower global demand can weigh on exports, remittances and foreign direct investment.
• Climate and disaster risks: Typhoons, floods, El Niño and earthquakes regularly impose heavy costs on farms, infrastructure and growth.

The central bank can help, but only within its mandate.

It should keep inflation expectations anchored and adjust policy rates when persistent price pressures threaten to become entrenched.

It should preserve a sound financial system so banks can continue lending to firms and households at reasonable rates.

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But the larger burden rests with the executive branch.

First, the administration should repair the budget. The 2026, 2027 and 2028 budgets should be redirected toward projects with high economic and social returns. The country’s infrastructure gap remains large, and past corruption in flood control and public works is not an argument for abandoning investment. It is an argument for cleaning procurement, cancelling spurious projects and funding a credible, transparent and technically sound pipeline.

Second, Mr. Marcos should practice fiscal restraint. With debt service rising and revenue vulnerable to slower growth, every peso must be able to withstand public scrutiny. That is consistent with the promise in the 2027 Budget Message that public money should be managed with “integrity, transparency and accountability.”

Third, the administration should reduce implementation risk. Good plans often fail in the hands of weak agencies, timid managers or politicians intent on recycling appropriations for pet projects. The president must ensure that priority programs and projects are funded, protected and executed consistently across agencies and over time.

The Philippines does not face full-blown stagflation. That is no reason for complacency. A stagflation-lite moment can still erode living standards, discourage investment and weaken public trust if officials treat it as a passing inconvenience. The remedy is not panic, but discipline: credible budgets, cleaner execution, targeted infrastructure and a central bank left to do its job.

Growth can recover. Confidence, once squandered, is harder to rebuild.