PHILIPPINE ECONOMIC GROWTH likely slowed to 2.5% in the second quarter as elevated inflation and subdued business confidence weighed on recovery, economists at the University of Asia and the Pacific (UA&P) said.
In the July issue of The Market Call, UA&P trimmed its second-quarter gross domestic product (GDP) growth estimate to 2.5% from 2.6% previously.
“The latest June indicator releases suggest some reprieve from the sudden oil shock. Some soft recovery is underway, though persistent above-target inflation and subdued business optimism may undermine the recovery narrative,” it said.
If realized, GDP growth would be slower than the 2.8% expansion recorded in the first quarter, and 5.4% in the second quarter of 2025.
This would also bring the average growth to 2.6% in the first half, still below the government’s 3.5%-4.5% full-year growth target.
“A triple threat of crude oil topping $80 per barrel, Metro Manila’s P85 wage hikes and severe El Niño conditions may push third-quarter inflation to Middle East-crisis levels once more,” UA&P said.
It noted that while easing food and fuel prices should continue to temper headline inflation, persistent core inflation “suggests price pressures underlying remain entrenched.”
Headline inflation eased to 6.4% in June, easing from 6.8% in May amid slower increases in food and transport costs.
However, core inflation accelerated to 4.4% in June from 4.2% in May, the highest level in 31 months suggesting that inflationary pressure has become increasingly broad-based, the UA&P said.
UA&P said that inflation risks would likely keep the Bangko Sentral ng Pilipinas (BSP) on the hawkish side with 50 basis points (bps) of rate increases this year.
“The BSP is likely to maintain a cautious policy stance as broadening price pressures, second-round effects, and the sudden upward minimum wage adjustment continue to pose upside risks to inflation, with the developing El Niño event adding further uncertainty to the outlook,” he added.
The BSP has already delivered two 25-bp hikes in April and June, bringing the key policy rate to 4.75%.
The Monetary Board will hold three more policy meetings this year on Aug. 27, Oct. 22 and Dec. 17. — Justine Irish D. Tabile
