S&P Just Said What Every Market Vendor Already Knew
The Philippines is in stagflation. That is not a forecast. That is not a "risk scenario" buried in a footnote. S&P Global Ratings said it flatly this week: sluggish growth and persistent inflation are happening simultaneously, and the country is already living through it. The agency pointed to surging energy costs and weak government spending as the twin engines of the squeeze.
What makes this assessment land differently from the usual rating agency boilerplate is that the domestic data corroborates it with brutal consistency. Philippine Statistics Authority data shows unemployment climbing to 2.86 million in September — more people joining the labor force, fewer of them finding work. Farm output cratered to an 11-year low in the third quarter, crushed by production costs and climate shocks. Inflation is expected to hold below 8 percent through year-end, but "below 8" is not comfort when your rice bill has nearly doubled in two years and your business loan carries double-digit interest.
The Philippines has been flirting with stagflation for over a year. S&P just made it official. The question now is not whether the diagnosis is correct — it is what happens when the official label triggers the next wave of capital flight, credit downgrades, and policy paralysis.
The Two Philippines Are Now Two Separate Economies
Here is the story that the stagflation headline buries: the economy is not collapsing uniformly. It is splitting in two.
On one side, DMCI Holdings posted a 28 percent profit surge to P15 billion in the first nine months. Robinsons Land sustained its growth momentum on recurring income from malls and offices. Converge's revenue still grew, even if margins compressed nine percent as infrastructure costs bit. These are not companies in distress. They are companies extracting value from a slowing economy by squeezing costs and leveraging scale.
On the other side, the agricultural sector — which still employs roughly a quarter of the workforce — posted its worst output in over a decade. The farmers and fisherfolk generating that output are not filing quarterly earnings reports. They are defaulting on agricultural loans from LandBank and the Development Bank of the Philippines, abandoning farmland in Central Luzon and the Bicol Region, and drifting into the urban informal economy where they become part of that 2.86 million unemployed or underemployed.
This is not a cyclical dip. This is structural decoupling.
The retail data confirms the bifurcation. O!Save, the hard-discount format partly owned by Robinsons Retail Holdings, just opened its 1,000th store. One thousand outlets selling the cheapest possible version of household goods, concentrated in low-income barangays across the country. Meanwhile, Anko — the Australian private-label brand owned by Woolworths — is expanding beyond Metro Manila for the first time since its 2024 Philippine debut, bringing the same discount model into provincial markets.
When discount retail hits a 1,000-store milestone and foreign entrants start eyeing Visayas and Mindanao provinces, that is not a growth story. That is a distress signal wearing a growth costume. Middle-income households are trading down. The aspirational consumer who once shopped at SM Hypermarket is now shopping at O!Save. The provincial household that once had no organized retail option is getting Anko instead of a sari-sari store — which sounds like progress until you recognize it means they can no longer afford anything else.
Energy Is the Stagflation's Hidden Engine
S&P flagged energy costs. Tokyo Gas, the Japanese utility giant, told Philippine officials this week to lock in more long-term LNG contracts to shield consumers from volatility. The message is straightforward: spot LNG prices are a weapon pointed at Filipino households, and the country has been slow to build the contracted pipeline that would defuse it.
This connects directly to the farm output collapse. Fertilizer costs, fuel for irrigation pumps, cold-chain logistics for fisheries — all tied to energy. The El Niño conditions that hurt crops in the third quarter will be followed by La Niña conditions that bring typhoons and flooding. Agriculture Secretary Francisco Tiu Laurel Jr. has been vocal about climate adaptation funding, but the budget allocation tells a different story. The Department of Agriculture's capital outlay remains a rounding error next to what the sector actually needs.
The EV policy debate — now reignited by rising fuel costs and the global shift — is a distraction dressed as a solution. Tesla just announced the Cybertruck is being discontinued to make room for its robotaxi line. That is a signal about where capital is flowing globally: not into vehicles for individual consumers, but into autonomous platforms. The Philippines should not be debating import tariffs on electric sedans. It should be debating whether the Department of Energy has a credible plan to bring power costs below ₱10 per kilowatt-hour for industrial users, because that is what determines whether manufacturing stays or leaves.
BSP's December Dilemma Is a Trap
Inflation below 8 percent sounds manageable until you decompose it. Food inflation — the component that actually matters to 60 million Filipinos who spend more than half their income on food — is running well above headline. The Bangko Sentral ng Pilipinas is split on whether to deliver another rate hike in December. Economists are openly divided.
Here is the trap: another BSP hike pushes the 28-day reverse repo rate higher, making peso-denominated lending more expensive for everyone from SMEs at the Small Business Corporation to families applying for a Pag-IBIG housing loan. It also widens the interest rate differential with the US, which should theoretically support the peso — except the peso has been ignoring rate differentials because the structural current account deficit and OFW remittance growth are no longer enough to offset import costs.
If the BSP does not hike, inflation expectations de-anchor. If it does hike, it accelerates the very growth slowdown that S&P is warning about. This is not a central banking problem. This is a fiscal and structural problem that the BSP is being asked to solve with a blunt instrument.
What SME Owners Should Do This Week
If you run a business in the Philippines right now, three things are true: your input costs are rising (energy, logistics, possibly labor if regional wage boards act in December), your customers are trading down, and your borrowing costs are not coming down anytime soon.
First, audit your receivables. When the economy slows and unemployment rises, payment cycles extend. The Small Business Corporation and LandBank's credit programs exist, but their underwriting timelines are brutal. If you are waiting for a customer to pay before you can pay your supplier, you are funding their operations with your balance sheet. Negotiate shorter terms or start requiring deposits.
Second, look at your pricing. The O!Save and Anko expansion is not just a retail story. It means your customers — even middle-income ones — are becoming price-sensitive. If you sell anything that can be substituted by a cheaper alternative, your pricing power is eroding. Test this now, before the holiday season data tells you the answer.
Third, watch the peso and your dollar-denominated obligations. The US jobs data that came out this week strengthened the dollar. The Fed is in no hurry to cut. If you have dollar loans or import-dependent inputs, your effective cost just went up again. The DTI's Kaya ng Pinoy and other SME support programs are not a substitute for a treasury policy.
The Bottom Line
S&P's stagflation label is not a warning. It is an after-action report. The Philippines is not heading toward stagflation — it is already inside it, and the two-speed split between profitable conglomerates and a collapsing agricultural base is the defining feature of this cycle, not a footnote to it. If you are a business owner, an investor, or a household managing a budget in 2026, the single most important adjustment you can make is to stop planning for a return to normal growth and start planning for a prolonged period where the economy grows, but most people do not feel it.