By Katherine K. Chan, Reporter
THE PHILIPPINES will likely miss its growth targets until 2027 as its investment slump and still heated inflation weigh on domestic activity, the ASEAN+3 Macroeconomic Research Office (AMRO) said.
In its assessment following its latest Annual Consultation Visit to the Philippines, AMRO slashed its 2026 gross domestic product forecast to 3.4% from 4.1% previously.
This is below the government’s 3.5%-4.5% target for 2026. It would also be slower than the 4.4% growth in 2025, when a flood control scandal dragged the economy to its weakest performance since the pandemic.
“Growth this year will be weighed down by weaker private consumption amid higher inflation and subdued investment, although a gradual recovery in public construction in the second half of the year and resilient exports should provide some support,” AMRO Mission Chief and Lead Economist Jinho Choi told a press briefing in Manila on Thursday.
In the second quarter, the economy posted a new post-pandemic low growth of 2.3%, weaker than 2.8% in the first quarter and 5.4% a year ago. This brought its first-half growth to 2.6%.
By 2027, AMRO expects economic growth to recover to 4.8%, although slower than its previous 5.5% projection. This also falls below the government’s 5%-6% goal for 2027-2030.
AMRO Chief Economist Dong He said the Philippines is among the hardest hit by the Middle East war-driven energy shock but is not necessarily an underperformer in Southeast Asia.
“Well, in terms of growth rate, certainly I think the decline in the growth rate this year, I think the Philippines is probably one of the economies that has suffered the most from this round of energy shock,” he said. “But I don’t necessarily say that it’s an underperformer. It’s a reflection of the type of energy mix you have.”
The country, a net importer of crude oil, has been under a year-long energy emergency since late March when the war in the Middle East started.
While they view the current slowdown as cyclical, AMRO noted that public investments remaining weaker for longer and the expected Super El Niño could further delay economic recovery.
“Over the medium term, structural challenges could pose greater obstacles to the economy’s growth potential,” it added.
Meanwhile, AMRO trimmed its Philippine inflation forecast to 5.4% from 5.7% for this year, and to 3.8% from 4.1% in 2027, citing easing inflationary pressures across the region.
However, Mr. Choi cautioned against renewed price risks arising from lingering uncertainty over continued unrest in the Middle East.
If AMRO’s forecast holds true, inflation will breach the central bank’s 3% target, marking a sharp acceleration from last year’s 1.7%.
Headline inflation has cooled for a third month in a row but stayed above the BSP’s 4% ceiling for five consecutive months at 6.2% in July. In the seven month-period, inflation stood at 5%.
“Elevated headline inflation reflects global oil prices remaining above pre-conflict levels, alongside second-round effects on non-energy items, including food and services,” Mr. Choi said.
Meanwhile, Mr. He noted that despite the peso’s recent depreciation against the dollar, they see limited exchange rate pass through to domestic prices.
“So, in our analysis, actually, there is somewhat a limited pass-through from exchange rate to domestic prices. I think the BSP has a very successful inflation targeting framework in place,” AMRO’s chief economist said.
“In this kind of framework, (the) exchange rate typically absorbs shocks. So, what you need to guard against is exchange rate becoming a shock amplifier. But so far, we haven’t seen a lot of that,” he added.
The peso plunged to an all-time low of P61.888 versus the greenback on Thursday, breaking its previous record of P61.847 on July 24, Bankers Association of the Philippines data showed.
The Development Budget Coordination Committee expects the peso to hold between P60 and P62 against the dollar until 2030.
For AMRO, sticky core inflation and potential de-anchoring of inflation expectations could justify further rate hikes by the BSP.
“Under monetary policy, the BSP should remain data-dependent in terms of monetary policy decision-making,” Mr. Choi said. “Further rate hikes would be warranted if core inflation remains elevated and persistent, or inflation expectations show signs of becoming de-anchored.”
Core inflation, which strips out volatile oil and food prices, has remained above the BSP’s target since the first full month of the Middle East war in March. However, it eased to 4.2% in July from the almost three-year high of 4.4% in June.
At its Aug. 27 meeting, the central bank raised its key policy rate by 25 basis points (bps) for a third consecutive time to 5% as it sees underlying inflation risks from volatile global oil prices, the looming “Super El Niño,” and the potential minimum wage hike. This brought its total hike from April to 75 bps.
The Monetary Board still has two rate-setting meetings left this year on Oct. 22 and Dec. 17.