By Justine Irish D. Tabile, Senior Reporter
THE PHILIPPINE ECONOMY could grow by around 5% within the second half of the 12 months, driven by base effects and an expected acceleration in government infrastructure spending, in line with the University of Asia and the Pacific (UA&P).
“Growth could get well to around 5% within the second half on base effects and a ramp-up in National Government infrastructure spending,” UA&P said in its The Market Call report this month.
Government officials earlier signaled a pickup in disbursements and project implementation as agencies roll out catch-up programs.
UA&P cautioned, nonetheless, that growth will remain subdued in the primary half amid unresolved issues surrounding last 12 months’s flood control scandal and elevated oil prices.
“Weak gross domestic product growth and faster inflation will weigh on the economy in the primary half amid the unresolved flood control scandal and high oil prices from the Middle East conflict,” it said.
“Flip-flopping US-Iran talks may keep fuel prices elevated, hitting the Philippines harder than its ASEAN (Association of Southeast Asian Nations) peers,” it added.
The Philippine economy expanded by a slower-than-expected 2.8% in the primary quarter. This was below the federal government’s goal range of 5-6% for the 12 months.
For the whole 12 months of 2026, UA&P said growth will likely be slow “but pose some resilience within the face of near-term global and native headwinds that may likely moderate activity in the primary half of the 12 months.”
“While cautious business sentiment and lingering geopolitical uncertainties may weigh on household and investment spending, the domestic economy continues to profit from strong structural drivers corresponding to regular household consumption, a healthy labor market, and sustained remittance inflows,” it added.
Meanwhile, UA&P said that it expects inflation to speed up further amid second-round effects from the oil shock, “but likely to not (reach) double digits 12 months on 12 months.”
Inflation accelerated to 7.2% in April, marking the second consecutive month that it settled above the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% goal. It also breached the BSP’s 5.6%-6.4% forecast for the month.
“The BSP took on a more hawkish tone due to above-estimate inflation, raising rates and its inflation forecast to six.3% for 2026,” it said.
“We likewise see above-target inflation for the remaining of 2026, with the potential of double-digit inflation rates as a consequence of base and second-round effects creeping into succeeding readings,” it added.
As inflation is predicted to settle above the goal for the remaining of the 12 months, UA&P expects the BSP to further tighten.
“Our outlook pencils in 75 basis points (bps) more of rate hikes for this 12 months, bringing the policy rate to five.25%, especially because the April inflation reading trumped even the BSP’s upper inflation sure,” it said.
The central bank last month raised rates for the primary time in nearly two years by 25 bps to 4.5%, with BSP Governor Eli M. Remolona, Jr. saying the Monetary Board stays open to extending the tightening cycle to anchor inflation expectations.
NO STAGFLATION
Despite weaker growth and high inflation, UA&P said the country is just not experiencing stagflation.
“Despite inflation negative commentary from some analysts, the Philippine economy is just not in stagflation mode,” it said.
“Inflation, while elevated, will continually trek downwards after a peace deal gets signed, and growth will return when infrastructure spending resumes together with consumer and business confidence,” it added.
Meanwhile, the peso stays under pressure as crude oil prices surge.
“The peso-dollar rate remained under pressure amid the rebound in crude oil prices (i.e., near $100/barrel for West Texas Intermediate, and $110/barrel for Brent) in April,” it said.
On Tuesday, the local currency closed P61.56 versus the greenback, weakening by 9.5 centavos from its P61.465 finish on Monday.
UA&P said it expects bonds with longer tenors to deliver higher returns amid elevated rates of interest, after investors cautiously returned to the local bond market in April.
Real 10-year yields showed only a 0.9% return based on the sooner 6.2% inflation forecast of the BSP, just half of the 1.8% 10-year average over the past decade.
“That will fall further once BSP updates its inflation forecast to above 6.5% for 2026,” it said.
Smaller yield gains are expected for shorter-dated papers as banks deploy excess liquidity to earn a minimum of some returns.
“Nevertheless, they could come too far behind with likely BSP policy rate (presently at 4.5%) hikes, which we expect will total 75 bps for the remaining of the 12 months,” it added.