By Justine Irish D. Tabile, Senior Reporter
The Asian Development Bank (ADB) lowered its 2026 growth forecast for the Philippines to 4.4%, amid growing uncertainty from the Middle East war.
In its April 2026 Asian Development Outlook (ADO) report, the Philippine lender lowered its gross domestic product (GDP) growth rate to 4.4%, down from its 5.3% forecast in December.
This is below the Philippine government’s 5-6% GDP range for 2026, but the same pace as last year’s growth. In 2025, the Philippine economy grew by a weaker-than-expected 4.4%, which is the slowest in five years or 2020 when the GDP enters by 9.5%.
By 2027, ADB sees GDP growing at 5.5%, at the lower end of the government’s target of 5.5–6.5%, “based on the assumption that inflation will moderate.”
“We see growth slowing as the country faces strong headwinds from the ongoing Middle East conflict,” ADB Senior Economic Officer Teresa B. Mendoza said at a press conference on Friday.
“As we know, being heavily dependent on imported oil, the global oil price shock has quickly spread to the economy,” he added.
The Philippines is a net importer of oil, and most of it comes from the Middle East, making it highly vulnerable to price volatility and supply disruptions.
ADB expects Philippine growth to be driven mainly by domestic demand and investment, but this may be tempered by rising price pressures.
“Domestic demand will continue to benefit from the delayed effects of fiscal cuts from 2024, but these benefits will be partially offset by significant inflationary pressures and growing uncertainty,” Ms Mendoza said.
Last month, the Bangko Sentral ng Pilipinas (BSP) kept its benchmark rate unchanged at 4.25% in a bid to calm markets worried about uncertainty from the US-Iran war.
In February, the BSP cut the key rate by 25 basis points (bps) to a three-year low of 4.25%, bringing the total reduction to 225 bps since the start of the easing cycle in August 2024.
ADB expects headline inflation to rise to 4% this year, up from its January forecast of 3%, under the baseline scenario. By 2027, ADB projects inflation to fall to 3.5%, within the BSP’s target of 2-4%.
The BSP last month raised its inflation forecast for 2026 to 5.1% from 3.6% previously; and in 2027 to 3.8% from 3.2% previously.
“However, prolonged conflict could intensify price pressures and cause inflation to rise sharply,” said Ms. Mendoza.
Philippine inflation rose to a nearly two-year high of 4.1% in March, breaching the BSP’s 2–4% target amid rising fuel costs.
“The drop in the price of oil has quickly spread to the cost of pumping fuel to homes, which has doubled,” said Ms. Mendoza. “Higher fuel and transportation costs and rising prices of food, fertilizers, and other commodities are creating inflationary pressure,” he added.
Ms. Mendoza said the depreciation of the peso increases inflationary pressure as it increases the cost of imports.
The peso closed at a low of P60.748 against the greenback on March 31, only to return to the sub-P60 level this week.
However, Ms. Mendoza said the forecasts assume an “initial state of stability,” meaning the war lasts only two months or until this month.
ADB Philippines Country Director Andrew Jeffries said the protracted conflict in the Middle East “will have a negative impact on the overall GDP growth of the country.”
“Perhaps the most important thing is that it has a very negative impact on people’s pockets compared to the total GDP of the whole country,” he added.
Ms. Mendoza said that one of the biggest risks in the Philippines is remittances. The Middle East accounts for more than 17% of the Philippines’ total remittances, and the ongoing conflict could affect overseas workers and domestic incomes, ADB said.
“In some years, it has appeared to be out of sync with the cycle. Most of the remittances are sent during the crisis,” he said. “But this problem, if it continues for a long time, even the remittances could be in serious danger.”
ADB said remittances should return when conditions improve in the region.
Last year, remittances rose to a record high of $35.634 billion, accounting for 7.3% of the country’s GDP.
LOAN PLAN
Meanwhile, Mr. Jeffries said there is “some uncertainty” about the lending program of multinational lenders to the Philippines.
“Because of this crisis and financial difficulties that we don’t know how long it will last, that may affect what they borrow and what they may need to prioritize and postpone, and so on,” he said.
“There is more uncertainty around lending in general, including ADB lending now, than, say, a year or two ago,” he added.
Regarding the plan for the continuation of the work, Mr. Jeffries said other projects are still being considered. He expects the government to complete its review next month.
The Philippines is among the largest recipients of independent support from ADB.
As of December 2024, ADB has provided public sector loans, grants and technical assistance to the tune of $36.5 billion, while its current portfolio in the country includes 25 loans worth $10.2 billion.
