By Bettina V. Roc, Assemble the Editor
International Monetary The International Monetary Fund (IMF) now expects economic growth in the Philippines this year to fall well below the government’s target as the oil shock from the Middle East war adds to the impact of the corruption scandal that has halted public spending.
The IMF lowered its 2026 gross domestic product (GDP) growth forecast to 4.1% from 5.6% in January, the latest World Economic Outlook (WEO) released on Tuesday.
This is much lower than the government’s target of 5%-6% and slower than the full-year expansion of 4.4% in 2025, which was lower after the pandemic due to a corruption scandal involving flood control projects.
“Growth in the Philippines is revised down to 1.5 percent in 2026, compared to January, with war shocks including negative effects from weaker-than-expected output in 2025 related to a sharp decline in investment and public confidence,” the IMF said.
Meanwhile, the IMF kept its growth forecast for 2027 at 5.8%. This is within the government’s target of 5.5%-6.5% growth.
“Growth risks are on the downside while inflation risks are on the upside, reflecting the risks of protracted war in the Middle East, further escalation of regional conflicts, and high trade policy uncertainty,” the IMF said.
Domestic risks stem from the impact of a corruption scandal, extreme weather events, and “weaker-than-expected reform momentum,” it added.
The 2026 forecast for the Philippines is similar to the expected growth speed of the ASEAN-5, which includes Indonesia, Malaysia, Singapore, and Thailand.
Among Southeast Asian economies with specific WEO forecasts, the Philippines’ GDP growth this year is expected to follow Vietnam’s 7.1%, Indonesia’s 5%, and Malaysia’s 4.7%. It is expected to expand faster than Thailand (1.5%) and Singapore (3.5%) this year.
“For many South and Southeast Asian economies, disruptions in the Middle East are expected to reduce tourism inflows and remittances, thereby weakening domestic demand,” he said.
This comes as the IMF once again cut its global expansion this year as it expects the Middle East conflict to threaten the outlook, with the highly volatile situation leading it to reveal several scenarios depending on the time frame. the war continues or if it continues.
Under its forecast, which assumes that the war’s duration, intensity, and scope are limited and implies that disruptions may ease by mid-year, the IMF sees the world economy growing by 3.1% this year, down from 3.3% in January. It kept its 2027 forecast at 3.2%.
“The global outlook has suddenly darkened following the outbreak of war in the Middle East on Feb. 28, 2026. The closure of the Strait of Hormuz and major damage to critical production facilities at the center of the global hydrocarbon supply could cause an energy crisis on an unprecedented scale,” said the IMF’s Economic Adviser and Research Director in the Gouririeword Report.
“The war has disrupted what had been a steady state of growth… The length and severity of the conflict and the time it will take for energy production and mobility to return to normal after the conflict ends will determine the ultimate magnitude of the shock to the world economy.”
READY TO FIX
Meanwhile, the IMF expects Philippine inflation to reach 4.3% this year and 3.2% in 2027. Both are faster than the 2.8% and 3% estimates it gave after the conclusion of the Article IV Consultation in December last year.
The Bangko Sentral ng Pilipinas (BSP) expects the consumer price index to average 5.1% this year, above its target of 2%-4% and last year’s result of 1.7% as it expects higher oil prices worldwide due to the war to increase the cost of domestic food, fuel, energy and transportation. By 2027, its forecast is 3.8%.
Inflation in the Philippines has already breached the central bank’s target in March, reaching 4.1%, which was the fastest pace in nearly two years or since 4.4% in July 2024 – and the last time the monthly print was above target. This was also above the BSP’s forecast of 3.1%-3.9% for the month.
In the three months to March, inflation reached 2.8%.
“The stance of monetary policy remains appropriate amid a widening negative output gap; but the BSP should be ready to tighten monetary policy if the risk of lowering inflation expectations arises,” the IMF said.
At an unchanged meeting last month, the Monetary Board left benchmark interest rates unchanged, but said it remained vigilant about potential price risks during the war.
BSP Governor Eli M. Remolona, Jr. he said that monetary policy has limited effectiveness against supply-driven price increases, but added that they are ready to act as necessary to keep inflation expectations grounded and reduce the potential effects of oil price shocks.
The BSP last hiked benchmark rates in October 2023. Its policy rate now stands at 4.25% following a rate cut of 225 basis points since it began its now-scheduled rate cut cycle in August 2024.
The IMF said policymakers will need to find a balance between maintaining growth and keeping inflation in check, while also ensuring they have enough cash to support those who will be hit by rising costs due to the energy shock.
“Central banks should be ready to take decisive action in accordance with their mandate. Monetary policy should maintain price stability and carefully match inflation to inflation expectations, especially in the medium to long term,” said the multinational lender.
“Since the memories of post-pandemic inflation are still fresh, the consequences of the second round may be greater than in 2021-2022. At the same time, premature tightening may be disruptive, if financial conditions tighten further … rapid inflation but risks recession in the long run.”
Meanwhile, the IMF sees the Philippines’ current account deficit widening to -4.4% of GDP this year from -3.3% in 2025. By 2027, the gap is seen at -3.5% of economic output. Both are greater than the -3.4% and -3.1% forecasts published in December.
