THE PHILIPPINE ECONOMY could face mounting pressure from rising political instability, with economists and business groups warning that this week’s chaos on the Senate may further weaken already fragile business and consumer confidence amid slowing growth, elevated inflation, and an ongoing energy crisis.
Alvin Joseph A. Arogo, head of research and chief economist at Philippine National Bank (PNB), said the events on the Senate on Wednesday would “definitely” not help an economy already grappling with weak sentiment tied to the flood control controversy, high inflation, and rising oil prices.
“If something like what you showed earlier happened, and we had strong growth, low inflation, a variety of reforms, then money managers can leaf through it,” he said in an interview on Money Talks with Cathy Yang on One News on Thursday.
“But once you have already got very weak growth (and) very high inflation, then you’ve gotten something like this, then the political risk becomes (even) more essential,” he added.
Gunshots were reported contained in the Senate constructing on Wednesday night amid tensions surrounding Senator Ronald M. dela Rosa, who is needed by the International Criminal Court for his alleged role in former President Rodrigo R. Duterte’s anti-drug campaign.
Mr. Arogo said the newest political tensions could further dampen sentiment amongst money managers, businesses and consumers.
“Well, initially, it should just make it more difficult for money managers to have faith within the economy. But what now we have seen within the corruption probe is that it spilled over even to business and consumer confidence,” he said.
“So, these are indications that the political risk, on top of the Middle East crisis (and) on top of high oil prices, will certainly make it tougher for businesses and consumers to spend confidently in the approaching quarters,” he added.
Business groups also raised concerns over the newest Senate incident, warning about possible effects on investor sentiment and the country’s international repute.
“We are able to say that that is the ultimate nail within the coffin in our struggle to maintain our businesses just even above water as a consequence of the assorted disturbances and inadequacies within the Philippine economic condition,” Foreign Buyers Association of the Philippines (FOBAP) President Robert M. Young said by telephone.
He said the Senate incident may affect the boldness of foreign buyers and investors within the country.
“Due to this fact, the FOBAP may be very much concerned that this might be affecting our business as a consequence of the shortage of comfort and the fear of the foreign buyers to come back over to the Philippines and invest,” he added.
Management Association of the Philippines President Donald Patrick L. Lim said political tensions are distracting policymakers from more pressing economic concerns.
“At a time of slowing growth, rising costs, and global uncertainty, businesses wish to see faster motion, stability, and decisive governance moderately than prolonged political maneuvering,” he said in a Viber message.
He added that investor confidence stays closely tied to political stability.
“The business community is anxious that continued political noise and public confrontations inside government institutions risk distracting leaders from way more urgent economic challenges facing the country,” he said.
Meanwhile, Federation of Philippine Industries Chairman Elizabeth H. Lee said businesses are in search of assurances that institutions remain stable and the rule of law is upheld.
“For business and industry, the reassurance we seek is that institutions remain resilient, laws are upheld, and governance continues to operate with transparency and accountability,” she said in an announcement.
HSBC Global Investment Research individually warned that stagflation risks are increasing within the Philippines after recent economic data showed slowing growth and faster inflation.
“All told, stagflation within the Philippines has taken shape. And the economic environment should get tougher moving forward,” HSBC Senior ASEAN Economist Aris D. Dacanay said in a report on Thursday.
HSBC lowered its Philippine growth forecast to three.4% this yr from 4.6% previously, while raising its inflation forecast to six.6% from 4%.
The Philippine economy grew by 2.8% in the primary quarter, the weakest pace for the reason that pandemic, while April inflation accelerated to 7.2%, exceeding market expectations.
Mr. Arogo said the country is already facing stagflationary pressures.
“We’ve got very high inflation. We’ve got very slow growth. So, on the very least, the pressure of stagflation is there,” he said.
ANZ Research also flagged rising balance-of-payment (BoP) risks for the Philippines and other Southeast Asian economies as higher oil prices widen current account deficits amid weak capital inflows.
“The emerging challenge for all three economies is that their current account deficits are set to widen on the back of upper oil prices, which can compound the BoP problem on account of weak capital inflows,” ANZ said in a report.
The bank noted that the Bangko Sentral ng Pilipinas (BSP) itself expects the Philippines’ current account deficit to hit 4% of gross domestic product (GDP) this yr, while the general BoP deficit may reach 1.5% of GDP.
HSBC said the BSP might have to boost rates more aggressively to forestall inflation expectations from becoming entrenched. The bank said the central bank could increase borrowing costs by as much as 150 basis points, potentially bringing the benchmark rate to six%.
BSP Governor Eli M. Remolona, Jr. has signaled openness to further modest rate hikes because the central bank seeks to bring inflation back to its 2%-4% goal range. — Katherine K. Chan and Beatriz Marie D. Cruz