|

Philippines: Stagflation risks as prices surge – HSBC

HSBC strategists warn that the Philippines is flirting with stagflation, as slowing Gross Domestic Product (GDP) growth coincides with the highest inflation in ASEAN. Weak public spending and cautious households are dragging demand, while the labour market softens. They expect growth to stay below potential in 2026–2027 but sees scope for a relatively quick market recovery once the energy shock fades.

Growth slows while inflation accelerates

"Stagflation appears to be emerging in the Philippines. For one, growth continues to sour. In 1Q26, growth came in at 2.8% y-o-y, stumbling to its slowest pace since 2009, excluding the COVID-19 pandemic."

"The culprits of the slowdown remain the same: public capital disbursements continue to fall at a significant rate while the uncertainty around public spending has led to households and businesses pulling back on their expenditures. Savings are up, and investment is down."

"Unfortunately, this slowdown in demand has already spilled over to the labour market. The unemployment rate in the Philippines has risen above 5%. And soon, households and small businesses may need to dip into the savings they have recently accumulated."

"This is because prices continue to rise amid slow growth. Currently at 6.8% y-o-y, headline inflation in the Philippines is the highest in the ASEAN region."

"Once the energy shock normalises, financial markets in the Philippines are likely to recover quickly. This is because the fiscal response has remained prudent, as officials opted for targeted welfare measures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD: Rebound remains capped by 0.6900 after China inflation data

AUD/USD holds the rebound below 0.6900 in the Asian session on Monday. Mixed China's inflation data for October fails to provide any inspiration to the Chinese proxy, the Australian Dollar, keeping the upswing limited. Reduced US-Iran tensions weigh on the US Dollar and fuel the bounce in the Aussie pair.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold rebounds above $4,100 despite strong US NFP data

Gold price recovers some lost ground to near $4,100 during the early Asian trading hours on Monday. Speculations that incoming Democrats would push to end the Iran war lift the yellow metal.



Week ahead: Inflation and geopolitics in focus as US political landscape shifts
It has been a rollercoaster week, with the initial market nervousness being replaced by strong risk appetite on Wednesday, which proved very short-lived, as risk assets suffered on Thursday. The result of the US midterm elections, with the Democrats performing exceptionally well and taking control of Congress, confused investors, although it is too early to judge if current trends will persist.
AI selloff: What bonds and credit markets reveal
The recent selloff in US technology stocks has left investors with a difficult question. Are we simply looking at a correction after months of strong performance, or is the market starting to reflect deeper problems in the economy? The Nasdaq 100 has lost as much as 16.3% from its record high, while the Philadelphia Semiconductor Index has experienced an even sharper decline.
US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.