APAC Economic Comment "Philippines: Oil reprieve, but risks linger" Lim

Research evidence excerpt

APAC Economic Comment "Philippines: Oil reprieve, but risks linger" Lim

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business sentiment. With the BSP having raised rates by 50bp so far, financing

conditions have tightened. Credit growth is expected to decelerate further, with

businesses likely having front-loaded borrowing earlier. As a result, both lending and

private investment should moderate. While the labour market remains broadly stable,

real income pressures are expected to weigh on consumption. (See charts overleaf)

After bottoming at 2.8% y/y in Q1, growth is expected to remain subdued in Q2 (UBSe:

2.9%), before gradually improving to 3.3% in Q3 and 4.1% in Q4. This remains well

below the estimated trend growth of around 6%. The modest recovery is likely to be

driven primarily by improved budget execution, supporting infrastructure spending and

government consumption. With the Q1 fiscal deficit at 5.0% of GDP, below the 5.3%

full-year target, there is some scope for stronger public spending, although execution

will be critical. Net exports are likely to remain a limited growth driver, reflecting the

Philippines’ relatively lower integration into the global AI and tech cycle. However,

services exports—particularly BPO-related activity—and tourism should continue to

provide some resilience.

Downside risks from El Niño could have a larger impact on the Philippines

Weather-related risks remain significant. A potential super El Niño could weigh on both

growth and inflation, particularly through higher food prices—especially rice, which has

a short sowing-to-harvest cycle of around 12 weeks and is highly rain-dependent. These

risks are especially acute for the Philippines for several reasons:

High food weight in CPI: Food accounts for close to 35% of the CPI basket (versus

~30% in Asia on average).