The Philippines’ growth prospects for the rest of the year will hinge on how quickly government spending recovers, regional surveillance group Amro said, forecasting that the economy will lag the regional average this year and in 2027.
In its Regional Economic Outlook Update released Monday, the Asean+3 Macroeconomic Research Office cut its forecast for Philippine gross domestic product (GDP) growth this year to 3.3 percent from 4.1 percent previously.
If realized, the 2026 expansion would fall short of the Marcos administration’s 3.5-percent to 4.5-percent target. Barring the pandemic-driven contraction in 2020, Amro’s new forecast would represent the weakest growth since 2009, when the economy expanded just 1.4 percent in the aftermath of the global financial crisis.
The Philippines would also trail the 4.9-percent average growth Amro expects across Association of Southeast Asian Nations (Asean) this year. Among its regional peers, the economy would grow more slowly than Vietnam’s 8 percent, Indonesia’s 5.3 percent and Malaysia’s 5.1 percent, but faster than Thailand’s projected 2.4-percent expansion.
20207 revision
For 2027, Amro said the Philippine economy could grow 4.6 percent, down from its previous estimate of 5.5 percent. The revised projection would fall short of the government’s 5-percent to 6-percent target and lag the 4.8-percent average growth Amro expects for Asean next year.
Dong He, chief economist at Amro, said at a press conference that the combined effects of an oil shock stemming from the war and weak government spending following a sweeping crackdown on corruption continued to weigh on the economy.
Amro cut its 2026 inflation forecast for the Philippines to 5.6 percent from 5.7 percent before, though the revised outlook remained above the central bank’s 3-percent target. For next year, the group estimated price growth average at 4.6 percent, significantly higher than its previous estimate of 4.1 percent.
Beyond prices, He said the pace of recovery in government spending would be crucial to the overall economy’s growth trajectory in the near-term.
‘Remember, there was this flood control related issue, and that significantly slowed down public investment,’ he said. ‘The growth outlook is very dependent on how fast public investment and construction related activities can pick up.’
To contain inflation, the Bangko Sentral ng Pilipinas (BSP) has raised its benchmark interest rate by a quarter percentage point three times since April, bringing it to 5 percent. BSP Governor Eli Remolona Jr. said the latest increase, in August, was a ‘preemptive’ response to emerging risks from a severe El Niño episode and possible wage increases.
Intact fundamentals
On the growth outlook, Remolona said local economic fundamentals ‘appear to be intact over the medium term,’ adding that a recovery in government spending could help stimulate activity in the second half of the year. The economy grew just 2.6 percent in the first half.
‘It’s a challenging balancing act. But remember that high inflation does eat into the real purchasing power of households,’ Amro’s He said. ‘Without putting inflation under control, growth will be affected in any case.’
Amid the headwinds, Amro said the Philippines remains sensitive to shifts in global financial conditions, particularly through foreign portfolio flows. Local bond yields have risen amid the country’s heavy reliance on energy imports, higher inflation risks and expectations for tighter monetary policy, the group said.