Senate turmoil seen weighing on confidence as stagflation risks rise

THE PHILIPPINE ECONOMY could face mounting pressure from rising political instability, with economists and business groups warning that this week’s chaos at 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 at the Senate on Wednesday would “certainly” 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 lot of reforms, then money managers can look through it,” he said in an interview on Money Talks with Cathy Yang on One News on Thursday.

“But when you already have very weak growth (and) very high inflation, then you have something like this, then the political risk becomes (even) more important,” he added.

Gunshots were reported inside the Senate building on Wednesday night amid tensions surrounding Senator Ronald M. dela Rosa, who is wanted by the International Criminal Court for his alleged role in former President Rodrigo R. Duterte’s anti-drug campaign.

Mr. Arogo said the latest political tensions could further dampen sentiment among money managers, businesses and consumers.

“Well, initially, it will just make it more difficult for money managers to have confidence in the economy. But what we have seen in 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 definitely make it more difficult for businesses and consumers to spend confidently in the coming quarters,” he added.

Business groups also raised concerns over the latest Senate incident, warning about possible effects on investor sentiment and the country’s international reputation.

“We can say that this is the final nail in the coffin in our struggle to keep our businesses just even above water due to the various disturbances and inadequacies in 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 confidence of foreign buyers and investors in the country.

“Therefore, the FOBAP is very much concerned that this will be affecting our business due to the lack of comfort and the fear of the foreign buyers to come 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 want to see faster action, stability, and decisive governance rather than prolonged political maneuvering,” he said in a Viber message.

He added that investor confidence remains closely tied to political stability.

“The business community is concerned that continued political noise and public confrontations within government institutions risk distracting leaders from far more urgent economic challenges facing the country,” he said.

Meanwhile, Federation of Philippine Industries Chairman Elizabeth H. Lee said businesses are looking for assurances that institutions remain stable and the rule of law is upheld.

“For business and industry, the assurance we seek is that institutions remain resilient, laws are upheld, and governance continues to function with transparency and accountability,” she said in a statement.

HSBC Global Investment Research separately warned that stagflation risks are increasing in the Philippines after recent economic data showed slowing growth and faster inflation.

“All told, stagflation in 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 3.4% this year from 4.6% previously, while raising its inflation forecast to 6.6% from 4%.

The Philippine economy grew by 2.8% in the first quarter, the weakest pace since the pandemic, while April inflation accelerated to 7.2%, exceeding market expectations.

Mr. Arogo said the country is already facing stagflationary pressures.

“We have very high inflation. We have very slow growth. So, at 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 higher oil prices, which will 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 year, while the overall BoP deficit may reach 1.5% of GDP.

HSBC said the BSP may need to raise rates more aggressively to prevent 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 6%.

BSP Governor Eli M. Remolona, Jr. has signaled openness to further modest rate hikes as the central bank seeks to bring inflation back to its 2%-4% target range. — Katherine K. Chan and Beatriz Marie D. Cruz