Philippines Most Vulnerable to El Niño in ASEAN, BofA Warns

The Philippines is likely to be the Southeast Asian economy hardest hit by an emerging strong El Niño, with Bank of America (BofA) expecting inflation to average 6.7 percent this year, the highest among major economies in the region. In its latest ASEAN 360 report, BofA said worsening weather conditions could intensify price pressures in the second half, on top of the delayed pass-through of higher costs from the conflict in West Asia and unfavorable base effects. "The Philippines is likely to be the most impacted in the region," BofA said. The research firm’s 6.7-percent inflation forecast for the Philippines was more than double its three-percent estimate six months ago. This is higher than the projected inflation of 3.3 percent for Indonesia, two percent for Malaysia and Singapore, 2.4 percent for Thailand and 4.8 percent for Vietnam. BofA also said the Philippines recorded the highest buildup in food prices in the region over the past six months, reinforcing concerns that weather disruptions could keep inflation elevated even as oil prices ease. While inflation expectations have moderated from earlier worst-case scenarios, rice prices and wage pressures remain key risks. On the growth front, BofA expects the Philippine economy to expand by only 2.5 percent this year before improving to 3.5 percent in 2027, still below its estimated potential growth rate of 4.5 to 5.5 percent. BofA said the Philippines has a negative output gap, which could persist through 2027, but further monetary tightening may still be necessary because inflation remains above the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target. BofA expects the BSP to raise its policy rate by another 25 basis points at its August meeting. The central bank has already delivered two consecutive 25-basis-point hikes since April, bringing the benchmark rate to 4.75 percent. "We think a moderate July inflation print, i.e. less than seven percent year on year, may be enough for the BSP to proceed with one more rate hike in August but signal that they may have already reached their target," it said. The Philippines, with its agricultural sector forming a crucial part of its economy, is particularly susceptible to the impacts of El Niño, such as droughts and floods, which can lead to food supply disruptions and price hikes. This could reduce the purchasing power of domestic consumers, a significant factor in an economy often supported by remittances from overseas workers.