THE PHILIPPINES will likely see a new post-pandemic low growth this year as the Middle East conflict continues to weigh on domestic demand and the country’s external position, Singapore-based Oversea-Chinese Banking Corp. (OCBC) said.
This came as OCBC Group Research kept its growth forecasts for the Philippines until next year but noted downside risks emerging from the ongoing energy crisis.
The bank’s research arm sees the Philippine economy expanding by 4.8% this year, below the government’s 5%-6% target.
If realized, this would be the weakest gross domestic product (GDP) growth since the 9.5% contraction in 2020.
“We maintain our 2026 GDP growth forecast at 4.8% yoy (year-on-year),” OCBC said in a report dated June 2. “Nonetheless, we see increasing downside risks to our growth forecast reflecting the persistent headwinds from the spillover effects of the Middle East conflict, which are anticipated to weigh on domestic demand drivers and the external sector.”
OCBC noted that its forecast likewise came on the back of the country’s weak momentum in the first quarter of the year.
Oil shocks amid the Middle East war led to a weaker-than-expected growth for the Philippines, which saw its GDP expand by 2.8% in the January-to-March period from 3% in the previous quarter and 5.4% a year ago.
However, the economy may be back on track next year as OCBC expects GDP growth to pick up to 5.5% or at the lower end of the government’s 5.5%-6.5% goal for 2027.
OCBC also maintained its inflation projection for the Philippines at 5.8% this year and 4.5% next year.
“On inflation, we maintain our 2026 inflation outlook, forecasting headline CPI (consumer price index) to accelerate to 5.8% in 2026 from 1.7% in the previous year, respectively, reflecting more pronounced and persistent pass-through from higher energy, food, and logistics costs,” it said. “The balance of risks is firmly tilted to the upside.”
Elevated energy prices amid the Middle East war have driven inflation in the Philippines, a net oil importer, past the central bank’s 2%-4% target for two straight months.
This prompted the Bangko Sentral ng Pilipinas (BSP) to raise the benchmark interest rate by 25 basis points (bps) to 4.5% in April, ending its nearly two-year easing cycle.
Central bank officials noted that their hawkish switch was meant to prevent broader second-order price effects and keep inflation expectations anchored.
Despite its unchanged forecasts, OCBC still expects the central bank to tighten further to bring the key policy rate to 5% by yearend.
BSP Governor Eli M. Remolona, Jr. has said that the Monetary Board is considering delivering an off-cycle hike before their June 18 policy review.
However, he signaled that they may also wait until the scheduled meeting later this month, considering the May inflation report will be out on Friday (June 5).
May inflation is expected to pick up to 7.9%, based on a median estimate in a BusinessWorld poll of 16 economists. This estimate falls right at the upper end of the BSP’s 7.1%-7.9% forecast for the month.
Meanwhile, Fitch Solutions unit BMI said the peso may get some relief from the BSP’s lined-up hikes, though noted that global headwinds may continue to sway the local currency.
“The BSP has hiked by 25 bps in April, and our current forecast indicates a jumbo 50-bp hike — we’re leaning to this happening at the upcoming June meeting,” Yen Nee Lee, senior Asia country risk analyst at BMI, told BusinessWorld in an e-mail.
“This will help to provide some stabilization to the peso, but generally the trajectories of emerging markets currencies are shaped by global risk sentiment and how long energy prices stay elevated,” she added.
The peso has remained volatile since the US and Israel’s initial attack on Iran on Feb. 28.
From trading around P58 against the greenback prewar, it has weakened to the P61-a-dollar range.
On May 29, the local unit closed at P61.59 against the dollar, falling by 10.50 centavos from its P61.485 per dollar finish on April 30. It sank to a new historic low close of P61.75 on May 18 and 19.
BIGGER GAP
Meanwhile, based on data obtained by BusinessWorld, Oxford Economics expects the Philippines’ fiscal gap widening to 5.5% of GDP this year.
This would make the Philippines the emerging Southeast Asian economy with the widest fiscal deficit relative to GDP, followed by Thailand at 4.3%, Malaysia at 3.8%, Vietnam at 3.6%, and Indonesia at 3%.
The Philippines’ deficit ceiling was set at P1.611 trillion or 5.3% of GDP this year.
Oxford Economics Assistant Economist Artie Lam noted in an earlier report that these countries could see their fiscal deficits widen by up to 1.5 percentage points due to the Middle East war.
Based on Oxford Economics data, the gap may gradually narrow over the medium term, but the Philippines will likely continue to have the widest fiscal deficit among its peers in the region.
By 2027, the country’s fiscal deficit-to-GDP ratio may shrink to 4.6%, and further narrow to 4.3% in 2028, 3.9% in 2029, and 3.6% in 2030. — Katherine K. Chan
