AMID slower second quarter growth and still elevated inflation, the country’s economic managers remain confident that the Philippines has yet to enter a period of stagflation.
The Organisation for Economic Co-operation and Development (OECD) said there is no single definition of stagflation, but it is generally understood as a combination of slow or zero economic growth and high inflation. The condition is also commonly associated with rising or high unemployment.
For Socioeconomic Planning Secretary Arsenio M. Balisacan, calling the slowdown in economic growth over the last three quarters as ‘stagflation’ would be ‘stretching it too far.’
The economy ended 2025 with weaker-than-expected growth of 3 percent in the fourth quarter. Growth then slowed further to 2.8 percent in the first quarter of 2026 and 2.3 percent in the second quarter.
Inflation, meanwhile, eased for the third straight month to 6.2 percent in July from 6.4 percent in June, extending its decline from a 7.2 percent peak in April.
Balisacan stressed that the economy is still posting ‘quite a good growth’ despite the Middle East conflict, while longer-term labor market trends continue to show declining unemployment and underemployment.
He noted that the economy generated around 4 million new jobs between the first half of 2021 and the first half of 2026, despite losing about 166,000 jobs between the first half of 2025 and the same period this year.
‘In the second half of the year, the economy is likely to be better,’ Balisacan said during the Economic Journalists’ Association of the Philippines (Ejap) economic forum on Friday.
Balisacan said the Department of Budget and Management (DBM) has already released funds that could help spur government spending in the second half and, in turn, support faster economic growth.
He noted that weak public spending had weighed on economic growth, with government spending contracting by nearly 30 percent for two consecutive quarters.
He said this weakness is unlikely to persist in the next two quarters.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. echoed Balisacan’s view, saying stagflation is ‘not a useful term’ for policymakers at the moment.
‘We don’t even think, are we in a stagflation or not? We don’t really care,’ Remolona said.
However, the BSP chief acknowledged that the economy is currently growing below its estimated potential of around 5.5 percent to 5.8 percent, resulting in what the central bank calls an output gap.
An output gap measures the difference between the economy’s actual output and its potential output. A negative gap means the economy is operating below potential, while a positive gap can signal stronger demand and greater inflationary pressure.
‘I think the output gap means we’ve become less aggressive in terms of raising the policy rate in order to tame inflation,’ Remolona said. ‘So we take account of both the weakness of our growth as well as our expectations of inflation.’
For 2026, the Development Budget Coordination Committee (DBCC) targets full-year economic growth of 3.5 percent to 4.5 percent, lower than its previous target of 4 percent to 5 percent.
The economy grew by an average of 2.6 percent in the first half of the year.
The Department of Economy, Planning, and Development (DEPDev) earlier said the economy would need to grow by an average of at least 4.4 percent in the second half to reach the lower end of the government’s revised growth target.