Archives: Business World Article

The ongoing Middle East conflict has had a “minimal” impact on the Philippine economy, the government said on Tuesday.

On the other hand, analysts said that another surge in global oil prices may trigger a renewed spike in inflation in the Philippines.

“The impact is so minimal on our economy that it doesn’t seem alarming as of now, as long as [global oil prices] don’t increase or the conflict worsens,” Department of Energy Officer-in-Charge Sharon S. Garin said, quoting the assessment of Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan.

President Ferdinand R. Marcos, Jr. on Tuesday held a meeting with economic managers to discuss the ongoing Middle East conflict.

“The President’s order is still that we make sure that we protect the Filipino people from the impact of the oil price hike, meaning, most especially those who use public utility vehicles, our farmers, and our fishermen,” Ms. Garin added.

The Philippines, a net importer of oil, is highly sensitive to sharp fluctuations in global oil prices.

“Oil prices are a significant contributor to inflation in the Philippines. Our analysis suggests that a 10% oil price shock contributes 0.3-0.4 percentage point (ppt) to headline consumer price index, all else equal,” Krisjanis Krustins, Asia-Pacific Sovereign Ratings director at Fitch Ratings told BusinessWorld.

However, the “final impact” of the war will rest on the duration and size of the oil price shock, Mr. Krustins said.

After surging on Monday, oil prices fell after US President Donald J. Trump announced a ceasefire between the Iran and Israel. Reuters reported that oil prices duly slumped almost 3% on Tuesday, on top of an almost 9% tumble overnight as the immediate threat to the vital Strait of Hormuz shipping lane appeared to have lessened.

US crude futures are back at USD 66.80 per barrel, about the lowest since June 11 before Israel’s attacks on Iran began.

“Likely to speed up inflation, as we import oil primarily. Oil, being a production input that links to many other industries, can trigger price increases down the line,” Ateneo Center for Economic Research and Development Director Ser Percival K. Peña-Reyes told BusinessWorld.

Inflation cooled to an over five-year low of 1.3% in May, as utility costs rose at a slower pace. This brought the five-month average to 1.9%, slightly below the BSP’s 2-4% target band.

S&P Global Market Intelligence Principal Economist Harumi Taguchi said inflation could settle to 2.3% in the second half and less than 2% for the full year.

“The situation is still uncertain, but assuming the oil prices stay around the current USD 75 per barrel and the peso remains at the current level through this end of the year,” Ms. Taguchi said in an interview on Money Talks with Cathy Yang on One News on Tuesday.

If oil prices surge to over USD 100 per barrel, inflation will likely accelerate to over 4% in the first half of 2026, she said.

The Bangko Sentral ng Pilipinas (BSP) last week slashed its inflation forecast to 1.6% for this year from 2.4% but noted that higher oil prices could add to inflationary pressures.

BSP Governor Eli M. Remolona, Jr. earlier warned that rising global oil prices and the weakening peso could bring inflation to 5%, breaching the 2-4% target range.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort projected a 0.5-0.7-ppt increase in inflation if crude oil prices remain elevated.

“The resulting higher local fuel pump prices would lead to higher prices of other goods and services, passing the effects of higher world crude oil prices and weaker peso recently, thereby could lead to some pickup in overall inflation,” he said in a Viber message.

Local fuel retailers implemented the first tranche of the oil price hike on Tuesday, while some firms are implementing the second tranche either on Thursday or Friday.

The total price increase for the week is PHP 3.50 per liter for gasoline, PHP 5.20 per liter for diesel, and P4.80 per liter for kerosene.

ANZ Research said the Philippine inflation will likely see a 0.1% uptick in the near term, citing oil’s relatively low weight in the Philippine CPI basket at 2.4%.

“While the Philippines and mainland China have seen a larger rise in pump prices, vehicle fuels make up a smaller share of their inflation basket,” it said in a note.

Mr. Ricafort also warned that the biggest risk for global crude oil supply is the disruption in the Strait of Hormuz, where 20% of the world’s supply passes through.

GlobalSource Partners Country Analyst Diwa C. Guinigundo said a sharp increase in petroleum prices could trigger higher prices for food and nonfood commodities.

“If JPMorgan’s oil price forecast of between USD 120 and USD 130 per barrel materializes over a prolonged period, it’s likely that we see a breach of the 2-4% inflation target,” Mr. Guinigundo told BusinessWorld.

The former BSP deputy governor also said second-round effects may be felt such as higher wages and transport fares.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the crude oil price trend is “not yet explicitly inflationary,” noting Brent crude remains 9% lower year on year.

“Reassuringly as well, oil futures still point to prices starting to calm down from September onwards,” he said.

He also said the risks to inflation globally, and not just the Philippines are now skewed to the upside.

“The good news from the Philippines’ standpoint is that it can arguably tolerate a rise in oil prices and, by extension, transport prices (etc.), given how low headline inflation has sank this year,” he said.

The Philippine Statistics Authority is set to release June inflation data on July 4, but analysts said the impact of the latest oil price spike will likely to be felt in the next two months.

‘Worse’ than Russia-Ukraine war

Mr. Peña-Reyes warned that the inflationary impact could be similar or “possibly worse” compared to the Russia-Ukraine war, which started in 2022.

During the onset of the war in late February, Philippine inflation spiked to 4% in March followed to 4.9% in April. It further stretched to 8% levels in November and December.

“It’s possible to see a similar situation that we saw during the Russia-Ukraine if this war is escalated with both the participation of Europe aside from the US as well as those more sympathetic to Iran like China and Russia,” Mr. Guinigundo said.

He also anticipated some retaliation that may set off a “train of global uncertainties and volatilities.”

“The 35% increase in global prices in 2022 took place over five months and was from a higher base of around USD 80/barrel,” IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said.

“Even though we’re starting from a lower base now, the current situation is, however, many times more alarming because the turmoil from the US-Israel-driven conflict is escalating in the major oil-producing region of the Middle East.”

Mr. Africa also recalled that oil prices doubled during past regional conflicts, such as the Iran-Iraq War, the Gulf War, and the US invasion of Iraq.

“If the week-long surge extends into months because of continued US-Israeli aggression, it is not unlikely to see another doubling of oil prices to USD 130 or more with huge effects on domestic inflation and further second-round effects from greater global economic turmoil,” Mr. Africa said.

He criticized short-term government measures like fuel subsidies as insufficient, urging structural reforms to reduce dependence on imported oil and food. — Aubrey Rose A. Inosante with Chloe Mari A. Hufana

 

Remittance inflows to the Philippines may fall by 1.4% if US President Donald J. Trump’s proposed tax on money sent home by foreign workers is implemented, Deutsche Bank Research said.

In a June 20 note, Deutsche Bank Research said Philippine remittances have been “sluggish” in recent months and face more downside risks if the so-called “One Big Beautiful Bill” is signed into law in the US.

“The imposition of such a tax in the US could lead to a 1.4% decline in remittance inflow (0.1% of gross domestic product) to the Philippines,” it said.

“However, we believe that the impact of a tax on remittances is likely to be short-lived; structural shifts are more likely to affect the growth of remittances in the longer term.”

Mr. Trump is pushing for the passage of the “One Big Beautiful Bill,” which includes a provision imposing an excise tax of 3.5% on money sent abroad by foreign workers in the US. Remittances made by US citizens and nationals are exempted from the tax.

The bill was approved by the US House of Representatives in May, and is now being deliberated by the Senate.

Deutsche Bank Research noted the US makes up 41% of total remittance inflows to the Philippines.

In 2024, cash remittances jumped by 3% to USD 34.49 billion from the USD 33.49 billion registered in 2023. The US was the top country source of remittances, accounting for 40.6% of the total.

“However, we note that this could be an overestimate of the remittances that originate from within the US,” it said.

It noted that North and South America account for only 9.8% of overseas Filipino workers (OFWs), while the Middle East accounts for around half or 46% of all OFWs.

“While a remittance shock could weigh on the Philippines’ current account balance and household consumption in the short term, we argue that structural shifts in OFWs would influence longer-term trends in remittances to a greater extent,” Deutsche Bank Research said.

The deployment of OFWs has declined since the coronavirus disease 2019 (COVID-19) pandemic. Deutsche Bank Research noted the share of households with OFWs fell to 6.5% after the pandemic, as many OFWs opted to stay in the Philippines instead of working abroad again.

“This could partly explain why remittance growth post-COVID has been lower at ~3% year on year on average vs. 5.8% in the 2010s. Remittances also fell to 7.7% of gross domestic product during the same period from 8.4% prior to that,” it said.

Cash remittances from migrant Filipinos coursed through banks rose by 4% to USD 2.66 billion in April from USD 2.56 billion in the same month a year ago.

In the first four months of 2025, cash remittances went up by 3% to USD 11.11 billion annually from USD 10.78 billion a year ago.

“In the short term, remittances should remain a crucial source of funding for the Philippines, but push-pull factors make the long term more uncertain,” Deutsche Bank Research said.

It noted there could be increased demand for Filipino healthcare workers in countries with aging populations.

“On the other hand, continued growth of the domestic BPO (business process outsourcing) industry could lead to OFWs in the foreign BPO sector to choose to relocate back to the Philippines,” it said.

The BSP forecasts 2.8% growth in cash remittances to an estimated USD 35.5 billion this year. Next year, cash remittances are projected to grow by 3% to USD 36.5 billion. — A.R.A.Inosante

 

Analysts are divided on the Philippine central bank’s easing trajectory for the rest of 2025, as an escalating conflict in the Middle East and oil price spike clouds the inflation outlook.

“We still see room for further policy easing to support economic momentum, and expect another rate cut of 25 basis points (bps) by the end of the year,” Moody’s Analytics economist Sarah Tan said in an e-mail.

“Policy easing will continue into 2026 as well. Monetary easing would support the domestic economy amid a complex external environment,” she added.

The Bangko Sentral ng Pilipinas (BSP) on Thursday cut the target reverse repurchase rate by 25 bps to 5.25% from 5.5% amid a moderating inflation outlook and weaker-than-expected first-quarter economic growth.

BSP Governor Eli M. Remolona, Jr. said on Friday that a rate cut in August was on the table depending on the data and a further escalation in the Middle East conflict.

“We could do another rate cut in August or we could pause and do the rate cut in October instead of August. That’s one possibility. But we’re looking at the data every day and we’re going to decide in August what the next move should be,” he said in an interview with CNBC.

The Monetary Board’s remaining policy meetings this year are scheduled for Aug. 28, Oct. 9, and Dec. 11.

Deutsche Bank Research also expects the BSP to cut by 25 bps in August.

“Our baseline for one more 25-bp rate cut in August remains, as we think that annual inflation is likely to stay near the lower end of BSP’s 2-4% target barring an escalation in the Middle East conflict,” it said in a note.

Ms. Tan said the BSP’s policy outlook has turned “slightly gloomier” due to the escalating conflict in the Middle East and uncertainties arising from the Trump administration’s trade policies.

“Political volatility across key oil-producing nations leaves the market vulnerable to sudden shocks. This could fuel higher global oil prices, which is concerning for the Philippines due to its heavy reliance on imported oil. This could add upward price pressures in the domestic economy and risks depreciation of the peso,” she said.

However, Moody’s Analytics does not see inflation breaching the central bank’s 2-4% target this year. The BSP expects inflation to average 1.6% this year, 3.4% in 2026 and 3.3% in 2027.

On the other hand, ANZ Research and Nomura Global Markets Research said the BSP may deliver two more rate cuts this year.

“Given the BSP’s inflation forecast of 1.6% for 2025, a terminal rate of 5% would imply that real rate would still remain elevated at 3.4%. Consequently, we think the BSP will have to cut rates two more times by 25 bps each in Q3 and Q4 2025 bringing the terminal rate to 4.75%,” ANZ Research said.

Nomura Global Markets Research said it expects two 25-bp cuts at the BSP’s August and October meetings “mainly supported by the low inflation outturns in coming months.”

However, the main risk to its view is the timing of these next cuts, Nomura said.

“An escalation in the Middle East conflict that is accompanied by further increases in oil prices could keep BSP from cutting and instead prompt it to leave the policy rate unchanged in the near term,” it said.

“The BSP also highlighted in the policy statement today that the Monetary Board will continue to assess the impact of prior monetary policy adjustments, which in our view suggests BSP could pause, if the domestic economy shows signs of improvement in the short run,” Nomura added.

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said in a June 19 report that while a rate cut was still possible this year, as the central bank should remain cautious as an overly aggressive easing cycle could leave the economy vulnerable to abrupt rate hikes by the US Federal Reserve.

He added the Monetary Board’s easing cycle could be disrupted if the conflict in the Middle East escalates further.

“Containing inflation should remain the top priority, since high inflation has been the main reason for the slowdown in GDP growth — more so than the current level of interest rates. Keeping inflation stable, even without additional cuts, will likely boost the economy. A resurgence in inflation, even with the rate cuts, could hold back growth again,” Mr. Neri said.

Pause

Meanwhile, some analysts said the BSP may pause its easing cycle for the rest of the year.

“Developments in commodity markets, global demand and trade tensions are at this point the biggest risk factors for inflation and therefore the BSP’s easing path,” Fitch Ratings’ Asia-Pacific Sovereigns Director Krisjanis Krustins said in an e-mail.

Mr. Krustins said he does not expect any more rate cuts by the BSP this year. He said the BSP will likely resume easing with a 25-bp cut in 2026, bringing the rate to 5%.

“This would imply a relatively small differential between the Philippines and the US in terms of policy rates, compared to history,” he said.

Mr. Remolona on Friday said the interest rate differential between the Fed and the BSP could narrow to 50 bps.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the BSP will likely pause at its Aug. 28 meeting as the central bank will first assess the effect of its cumulative rate cuts in addition to the reduction of banks’ reserved requirement ratio (RRR).

“We reckon this evaluation will focus on transmission lags and the current high real interest rate environment to determine whether further easing is warranted,” he said.

The BSP on March 28 cut the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5%. The RRR for digital banks was also lowered by 150 bps to 2.5%, while the ratio for thrift lenders was cut by 100 bps to 0%.

Mr. Asuncion said the BSP could cut the target reverse repurchase rate up to 3% to 3.5% before pausing, aligning with pre-pandemic levels and the central bank’s inflation target. — A.M.C. Sy

Global oil prices are expected to soar amid a widening conflict in the Middle East after the US attacked Iranian nuclear sites.

“World oil prices could rise further because of the new development. The potential increase in premium and freight, which are projected to rise because of the expanded scope of hostilities, could be factored in the expected movement on domestic prices next week,” Jetti Petroleum, Inc. President Leo P. Bellas said in a Viber message.

The impact of the potential increase in freight would be determined “as soon as trading commences early (Monday) morning,” Mr. Bellas said.

As of June 21, diesel is projected to go up by PHP 4.90 to PHP 5.10 per liter; and gasoline by PHP 3.20 to PHP 3.40 per liter, an industry player said.

If realized, this would be the sixth consecutive week of price hike for gasoline and four straight weeks for diesel.

The US launched airstrikes on three nuclear sites in Iran, US President Donald J. Trump said late on Saturday, saying these facilities “have been completely and totally obliterated,” Reuters reported.

Mr. Bellas said that industry players are set to meet with the Department of Energy (DoE) on Monday to look for ways to cushion the impact of the looming big-time price hike.

He said that the meeting aims “to discuss the implementation of the price increase (this week) on staggered basis, promos and discount offerings of stations to help mitigate the impact of the price increase, among other things.”

Before the US attack on Saturday, analysts at Oxford Economics modeled three scenarios, including a de-escalation of the conflict, a complete shutdown in Iranian oil production and a closure of the Strait of Hormuz, “each with increasingly large impacts on global oil prices,” Reuters reported.

In the most severe case, global oil prices jump to around USD 130 per barrel, driving US inflation near 6% by the end of this year, Oxford said in the note.

“Although the price shock inevitably dampens consumer spending because of the hit to real incomes, the scale of the rise in inflation and concerns about the potential for second-round inflation effects likely ruin any chance of rate cuts in the US this year,” Oxford said in the note, which was published before the US strikes.

In comments after the announcement on Saturday, Jamie Cox, managing partner at Harris Financial Group, agreed oil prices would likely spike on the initial news. But Mr. Cox said he expected prices to likely level in a few days as the attacks could lead Iran to seek a peace deal with Israel and the United States.

Rodela I. Romero, assistant director of Oil Industry Management Bureau of the Department of Energy, said on Friday that there is a “major oil price shock looming as the Israel-Iran conflict threatens critical global shipping passage.”

The DoE earlier said that the government is prepared to roll out fuel subsidies to transport operators and farmers to contain the broader impact of high fuel costs on the prices of basic goods and services.

Fuel companies in the Philippines are mandated to maintain at least a 30-day fuel inventory to help stabilize local supply. If global crude prices exceed the USD 80 per barrel threshold, fuel subsidies for public transport drivers and fisherfolk will be automatically triggered.

President Ferdinand R. Marcos, Jr. said last week that the government may extend fuel subsidies to sectors severely affected to a spike in oil prices.

“Fuel subsidies are the correct policy response because allowing an increase in transport fares will hit the commuting public hard and strengthen inflationary pressures. Moreover, it’s possible that these subsidies may only be temporary if the Middle East crisis passes,” Calixto V. Chikiamco, president at Manila-based Foundation for Economic Freedom, said in a Viber message.

Impact on inflation

As oil prices rise due to the developments in the Middle East, analysts warned this could stoke inflation and dampen consumer confidence, as well as hurt remittances.

“Its economic impacts will include higher inflation risks, as the Middle East where these conflicts are happening is the main source of our country’s oil,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said in a Viber message.

“In addition, a lot of OFWs (overseas Filipino workers) are working in this region which may also negatively impact remittance inflows and of course their overall safety,” he said.

BSP Governor Eli M. Remolona, Jr. earlier warned that rising global oil prices and the weakening peso could bring inflation to 5%, breaching the 2-4% target range.

“We have a bad scenario, if I may call it that, in which our inflation rate could exceed 5%. But we hope it doesn’t happen and we’re carefully watching that,” Mr. Remolona said in an interview with Cathy Yang on One News TV on June 22.

Mr. Remolona also said the 5% inflation scenario would involve Dubai crude reaching USD 100 per barrel and the peso sharply depreciating.

“Our good scenario, or I would say our central scenario says, inflation will go up to around 3.4%,” he said.

Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co. said the Middle East conflict has a minimal impact on remittances for now.

He warned the conflict may escalate further and spread to other Middle East countries where there are significant numbers of OFWs such as Saudi Arabia, the United Arab Emirates, and Qatar.

Data from the Bangko Sentral ng Pilipinas said remittances from the Middle East region stood at USD 1.97 billion in the first quarter, up 6.51% from the same period last year.

Juan Paolo E. Colet, managing director at China Bank Capital Corp., said that oil companies need to manage their procurement, inventory, and hedging strategies well to mitigate the impact of potential price spikes and supply disruptions.

Mr. Colet said that while the government can offer subsidies to public transportation providers to cushion the impact of higher oil prices, this can only be a short-term solution.

“Our policymakers must look beyond the current conflict in the Middle East to make our country resilient to oil shocks. That includes investing in mass transit systems, fast-tracking renewable energy and battery energy storage projects, and promoting the shift to EVs (electric vehicles),” he said in a Viber message. — Sheldeen Joy Talavera and Aubrey Rose A. Inosante, Reporters with Reuters

Agriculture is expected to post stronger growth in the second quarter, driven by a significant rise in rice and corn output, the Department of Agriculture (DA) said on Sunday.

Palay (unmilled rice) output is projected at 4.36 million metric tons (MMT) in the second quarter, which would be up 13% from a year earlier, the DA said in a statement.

This also represents an upgrade to the 4.34 MMT forecast issued in April.

The increase is driven by the growth in riceland to be harvested — up 9.2% at 972,730 hectares — and improved yields, projected at 4.48 MT per hectare, up from 4.32 MT previously.

The DA cited favorable weather, increased government support through the Rice Competitiveness Enhancement Fund (RCEF), contract farming initiatives, and stronger palay procurement by the National Food Authority (NFA).

The NFA currently buys palay at between PHP 18 and PHP 24 per kilo.

The farmgate price of palay has averaged PHP 17.75 per kilogram, down 28.9% year on year in May.

Month on month, the palay farmgate price fell 1.6% in May.

The DA said corn production is expected to grow “even more dramatically,” noting that based on the standing crop as of May 1, the government projects second-quarter output to increase 27% year on year to 1.487 MMT.

The land area to be harvested is set to expand 16% to 402,690 hectares.

Rice and corn production are major contributors to crop production, which accounts for about 57% of agricultural output.

Meanwhile, the DA said in a separate statement it is putting the “final touches” on a draft bill that aims to restore critical functions of the NFA.

The bill seeks to amend the Rice Tariffication Law to grant certain regulatory powers to the NFA to “better manage buffer stocks” and “regulate rice distribution and marketing,” it said.

The bill also seeks to empower the NFA to set a floor price for palay, and support farmers’ cooperatives and recipients of rice processing systems funded under the RCEF.

“It will also refine protocols for DA-led rice imports to ensure the country can respond swiftly to supply shortages and sudden spikes in commodity prices,” the DA added.

“Critically, the measure grants the NFA greater flexibility in managing the appropriate level of buffer stock and ensuring that they are always of optimum quality — an essential tool in supporting not only the P20-per-kilo rice goal but also broader government efforts to ensure price stability and protect both producers and consumers,” the DA said. — Kyle Aristophere T. Atienza, Reporter