‘MORE SHOCKS TO COME’: Stagflation risk seen amid Middle East oil shocks

By Rjay Zuriaga Castor

An economist warned of a possible “stagflation” scenario—characterized by rising prices, weak economic growth, and increasing unemployment—if the impact of the Middle East crisis is not carefully managed at the local level, particularly in Western Visayas, where inflation rates already trend above the national average.

Dr. Winston Conrad Padojinog, a senior economist and president of the University of Asia and the Pacific, said inflation in the region has been higher than the national average over the past few years, and current global developments could widen that gap further.

“It is expected to be relatively higher (inflation), especially now, because much of the goods that are imported will have to be consolidated in the international ports outside Iloilo. After consolidation, they are distributed, which is an additional cost that we have to shoulder,” he said during the Resilient Leadership: Strategy and Strength Amid Global Uncertainties Economic Dialogue hosted by the Iloilo City government.

“We will still source those raw materials and all the goods that we need from outside, so that means additional logistical costs, additional expenses,” he added.

He noted that the region’s economic structure also heightens its exposure to global shocks.

As a service-driven economy with limited manufacturing capacity, Western Visayas depends heavily on imported goods and raw materials.

“We do not have the manufacturing base to produce the goods that we need. We are becoming more dependent on imported goods. It is good because it’s driving fast but it also makes us vulnerable,” he said.

He also flagged labor concerns, noting that unemployment levels in Western Visayas and Iloilo province had already been rising even before the Middle East conflict, in some cases surpassing national figures.

“Any slowdown will have a more profound impact on unemployment in Western Visayas and Iloilo province,” he added.

He further cited risks such as potential declines in overseas Filipino worker remittances and job displacements abroad.

While poverty incidence in Iloilo City declined to 2.3 percent in 2023, Padojinog warned that gains could be reversed as inflation erodes purchasing power, particularly among wage earners.

He emphasized that reduced demand for goods and services and slower domestic output could limit the region’s capacity to absorb new entrants into the labor force and may push poverty levels upward again.

“Inflation is rising. If we don’t do anything about spending, output will be stagnating, and unemployment may actually be growing. If not addressed, we will have stagflation,” he said.

Economists describe stagflation as an economic situation where prices are rising while economic growth is weak or stagnant and unemployment is high.

He explained that policymakers face a trade-off in such conditions: increasing government spending can stimulate jobs but may worsen inflation, while tightening monetary policy to curb prices could dampen economic activity and raise unemployment.

“Coming out of stagflation is very difficult in policy making because there is a trade off […] and we don’t want to go there,” he said.

To cushion the impact, he urged the local government to sustain strategic spending and remain focused on long-term development goals.

“We have to manage by mission, to still think long-term. Do not be distracted by this crisis,” he said.

He pointed out that while the national government operates under fiscal deficits, many local government units maintain surpluses that can be used to “prime” local economies.

Padojinog also recommended ramping up investments in infrastructure such as energy, water, and digital systems while encouraging private sector participation through public-private partnerships.

He also called for targeted interventions, including subsidies for vulnerable sectors and short-term fiscal relief for micro, small, and medium enterprises.

Padojinog opposed proposals to cut excise taxes on oil, warning that doing so could weaken the government’s fiscal capacity to support affected sectors.

“I am not into cutting the excise tax on oil, and you can disagree with me. If you cut that, the government is already in deficit. You cut that even more, where will it get its fire power to subsidize the vulnerable sector?

Given the region’s import dependence, he pushed for the development of agro-industrial zones to strengthen domestic production, support both import substitution and export-oriented industries, and rebuild the industrial base anchored on agriculture.

“That is what happens if we neglect our industrial base. We are import-dependent, even for some of the goods that we can actually produce. We need to restart our industrial base, but this time built on agriculture. We need to feed our own population,” he said.