By Katherine K. Chan, Reporter
THE Philippine economy may continue to grow below its potential through 2027 as persistent energy shocks and weak investment weigh on activity, the ASEAN+3 Macroeconomic Research Office (AMRO) said.
In its latest ASEAN+3 Regional Economic Outlook, AMRO slashed its Philippine gross domestic product (GDP) growth projections for this year to 3.3% from its July estimate of 4.1% and for 2027 to 4.6% from 5.5%.
Both forecasts are below the National Government’s growth targets of 3.5%-4.5% for 2026 and 5%-6% for 2027.
AMRO also trimmed its inflation forecast for this year to 5.6% from 5.7% previously but raised it for next year to 4.6% from 4.1% previously.
If realized, inflation will accelerate from the 1.7% clip last year and breach the central bank’s 3% target for two consecutive years.
At a press briefing on Monday, AMRO Chief Economist Dong He noted that the Middle East war-driven energy shock took a heavy toll on the Philippine economy, significantly slowing growth while fueling inflation.
“The Philippines is one of the economies that was hit harder by the energy shock,” he said. “As you recall, when the Middle East conflict took place, the government took very swift action and they introduced a national emergency. So that, I think, helped the country galvanize towards responses towards this big energy shock.”
“But of course, growth did slow down significantly and the inflation went up very quickly,” Mr. He added.
The AMRO chief economist also noted that the Philippine economy continues to be weighed down by an investment slump following the flood control corruption scandal which broke out last year.
“Now, the Philippines also have some domestic issues that they need to deal with,” Mr. He said. “Remember, there was this flood control-related issue and that significantly slowed down public investment.”
“So, the growth outlook is very dependent on how fast public investment and construction related activities can pick up,” he added.
In the second quarter, the country’s GDP growth tumbled to a post-pandemic low of 2.3%, bringing the first-half average to 2.6%. Public construction declined in the aftermath of the flood control mess, while the energy shock-driven inflation squeezed household spending.
A timely catch-up in “well-governed public investment” will be key in the economy’s rebound to its potential, Mr. He said.
AMRO, in its 2026 ASEAN+3 Financial Stability Report (AFSR), warned that delays in rolling out infrastructure projects and a widening current account gap could weigh on corporate earnings and investor confidence.
MONETARY POLICY
According to Mr. He, the Bangko Sentral ng Pilipinas (BSP) still faces a challenging balancing act as inflation continues to run hot while the economy struggles to recover.
However, the AMRO chief economist noted that failing to address inflation concerns also risks dampening economic growth by straining household consumption.
“If you tighten further, then that might have a dampening effect on growth as well, even though that’s required for you to tackle high inflation. So, it’s a challenging balancing act,” Mr. He said.
“But remember that high inflation eats into the real purchasing power of households. So, without putting inflation under control, growth will be affected in any case,” he added.
The BSP shifted to a tightening cycle in April after inflation accelerated faster than it had anticipated, a move which AMRO also lauded.
August inflation settled above the central bank’s target for six months in a row, bringing the year-to-date reading to 5.2%.
At its August meeting, the BSP raised its benchmark rate by 25 basis points (bps) to an over one-year high of 5% for a third straight meeting, bringing its total hikes so far to 75 bps.
BSP Governor Eli M. Remolona, Jr. said their decision meant to rein in looming inflation risks from the Super El Niño and minimum wage hike as well as lingering pressures from elevated global oil prices.
For Mr. He, the central bank must remain committed to its inflation-targeting framework and refine its inflation outlook to strike a balance between tempering price pressures and supporting the economy.
“So, it’s important for the central bank to stick to its framework, of course, to take a forward-looking perspective and have a good reading of inflationary developments for them to take the appropriate policy action,” he said.
The BSP’s next regular policy review is on Oct. 22, while the last meeting this year is set on Dec. 17.
ARTIFICIAL INTELLIGENCE
Meanwhile, AMRO said economies in the Association of Southeast Asian Nations Plus Three (ASEAN+3) are seen to benefit from the artificial intelligence (AI) boom, but persistent energy issues and the Super El Niño dimmed the outlook.
AMRO sees ASEAN+3 growing by an average of 4.1% in 2026 and 2027, with inflation in the region settling at 1.6% this year and 1.7% next year.
ASEAN+3 comprises the ASEAN members — the Philippines, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, and Vietnam — plus China, including Hong Kong, Japan, and South Korea.
Its latest economic outlook for the region came as “stronger AI-related exports and investment support growth, while higher energy costs and El Niño-related food-price pressures raise inflation.”
AMRO noted that the Philippines is among the highly exposed in the region to El Niño-related supply disruptions and price risks given the large share of food in its consumer basket.
The state weather bureau has said that the Philippines may encounter a “very strong” El Niño season between September and December this year, which could last until the first half of next year.
However, while the AI boom may spur ASEAN+3’s growth, its central position in the global AI supply chain makes it more vulnerable to a potential AI-linked market correction, AMRO noted in its AFSR.
“If the expected AI returns disappoint, forced deleveraging can tighten the global financial conditions,” AMRO Group Head and Lead Economist Runchana Pongsaparn told the briefing.
“And ASEAN+3 is particularly exposed because we sit right at the center of the global AI supply chain and increasingly integrated into the AI-related financial markets,” she added.
Such a collapse could result in “lower technology exports, portfolio losses, capital outflows, refinancing pressure on leveraged technology and infrastructure firms, and weaker investor confidence,” AMRO added.
On the other hand, AMRO noted that economies like the Philippines, which are vulnerable to prolonged global uncertainty, have seen sharp rise in bond yields and currency depreciation.
“In contrast, more vulnerable markets saw larger yield upticks and currency pressure… in the Philippines yields increased owing to its heavy dependence on energy imports, higher inflation risks, and expectations of tighter monetary policy,” it said.
AMRO likewise flagged credit risks from the country’s online lending platforms and buy now, pay later services.
“In the case of the Philippines and Indonesia, concerns are more centered around online lending and buy now, pay later credit, where refinancing risk can increase in a downturn,” Ms. Pongsaparn said.
