The word “stagflation” is beginning to circulate in discussions of the Philippine economy — but, strictly speaking, the country is not there, according to economist and Bangko Sentral ng Pilipinas (BSP) Monetary Board member Benjamin E. Diokno. Growth has slowed sharply and inflation remains uncomfortable, yet unemployment is not too high and output continues to expand. A better description, he argues in a BusinessWorld opinion column, is less dramatic but still worrying: the Philippines is passing through a “stagflation-lite” moment.

Classic stagflation combines three ills at once: high inflation, weak or negative real growth, and high unemployment. The Philippine version is milder. Inflation has pinched households, growth has lost momentum, and investment has faltered, but the labor market has not collapsed. That distinction matters, Diokno writes, because misdiagnosing the illness risks prescribing the wrong cure.

Growth slows under Marcos

Under President Ferdinand Marcos, Jr., the economy began with enviable speed and has since slowed to a crawl. Real GDP grew by 7.6% in 2022, his first year in office. By the first half of 2026, growth had eased to 2.6%, after a 2.8% expansion in the first quarter and 2.3% in the second. Inflation, meanwhile, has remained elevated, while unemployment has stayed comparatively contained. The situation is not the misery of the 1970s, but neither is it a picture of robust, confidence-building expansion.

That gap between still-growing output and weaker momentum is part of why Diokno frames the problem as a warning sign rather than a crisis label. For households, the strain shows up in prices that remain hard to absorb; for firms, it shows up in cautious investment decisions; and for policymakers, it narrows the room for error. Even without full-blown stagflation, the combination can still weigh on spending, hiring, and the public mood.

A feasible plan, not slogans

There is still time to alter the trajectory, but not much. Mr. Marcos has less than two years before he leaves office on June 30, 2028. His administration can still finish with credibility, but only if it abandons business as usual. The task is not merely to announce programs but to restore confidence among households, firms, investors, local governments, Congress, and the Bangko Sentral ng Pilipinas.

Some headwinds are beyond Malacañang’s control:

• Geopolitical shocks and supply disruptions — wars and instability abroad can lift oil, fertilizer, and food prices, feeding quickly into Philippine transport and agricultural costs.
• A weaker world economy — slower global demand can weigh on exports, remittances, and foreign direct investment.
• Climate and disaster risks — typhoons, floods, El Niño, and earthquakes regularly impose heavy costs on farms, infrastructure, and growth.

These risks also help explain why policy credibility matters so much. When outside shocks are common, governments have less ability to rely on favorable conditions and more need to make domestic spending, regulation, and implementation work efficiently.

The central bank’s limited role

The central bank can help, but only within its mandate. It should keep inflation expectations anchored and adjust policy rates when persistent price pressures threaten to become entrenched. It should also preserve a sound financial system so banks can continue lending to firms and households at reasonable rates.

That role is important, but it is not enough on its own. Monetary policy can help stabilize prices and preserve confidence, yet it cannot fix procurement failures, close infrastructure gaps, or ensure that public projects are delivered on time and on budget. Those are executive tasks.

The larger burden: three executive priorities

The larger burden, however, rests with the executive branch.

First, repair the budget. The 2026, 2027, and 2028 budgets should be redirected toward projects with high economic and social returns. The country’s infrastructure gap remains large, and past corruption in flood control and public works is not an argument for abandoning investment. It is an argument for cleaning procurement, cancelling spurious projects, and funding a credible, transparent, and technically sound pipeline.

Second, practice fiscal restraint. With debt service rising and revenue vulnerable to slower growth, every peso must be able to withstand public scrutiny. That is consistent with the promise in the 2027 Budget Message that public money should be managed with “integrity, transparency, and accountability.”

Third, reduce implementation risk. Good plans often fail in the hands of weak agencies, timid managers, or politicians intent on recycling appropriations for pet projects. The president must ensure that priority programs and projects are funded, protected, and executed consistently across agencies and over time.

No reason for complacency

The Philippines does not face full-blown stagflation, but that is no reason for complacency, Diokno concludes. A stagflation-lite moment can still erode living standards, discourage investment, and weaken public trust if officials treat it as a passing inconvenience. The remedy is not panic, but discipline: credible budgets, cleaner execution, targeted infrastructure, and a central bank left to do its job. Growth can recover. Confidence, once squandered, is harder to rebuild.

Benjamin E. Diokno is an economist, professor emeritus of Economics, and Monetary Board member of the Bangko Sentral ng Pilipinas. He was Secretary of Budget and Management under three administrations (Corazon Aquino, Joseph Estrada, and Rodrigo Duterte), served as Chairman of the Monetary Board and BSP Governor from 2019 to 2022, and was Secretary of Finance under Ferdinand Marcos, Jr. from 2022 to 2024.