The war in the Middle East threatens the growth vision of the Philippines
By Katherine K. Chan, A reporter
THE EASTERN CONTROVERSY threatens the Philippines’ growth prospects but a retied to private spending and strong exports can still place the country as the second fastest growing economy in the region, ASEAN+3 Mac.Office of roeconomic research (AMRO) said.
AMRO Chief Economist Dong He said the Philippines’ gross domestic product (GDP) is expected to grow 5.3% this year, unchanged from its January forecast, and 5.8% in 2027.
“This makes the Philippines one of the fastest growing economies in the region – above the ASEAN (Association of Southeast Asian Nations) average of 4.6% and the ASEAN +3 of 4%,” said Mr. BusinessWorld in an email conversation. “The acceleration reflects an expected recovery in private consumption and strong exports.”
If both predictions are true, the Philippines will be the second fastest growing economy within ASEAN, behind only Vietnam which is expected to grow by 7.4% this year.
The country is also seen surpassing Indonesia (5%), Cambodia (4.9%), Laos (4.6%), Malaysia (4.6%), Singapore (3.4%), Myanmar (2.5%), Brunei (1.9%) and Thailand (1.7%).
The Philippine economy is expected to surpass last year’s 4.4% growth even as the flood control scandal reduces government spending, household consumption and investment in the country.
AMRO’s projections are within the government’s target of growing GDP by 5-6% this year and 5.5-6.5% by 2027.
Household spending, which accounts for more than 70% of the country’s GDP, grew by 3.8% in the fourth quarter, the weakest pace seen since -4.8% in the first quarter of 2021.
Although AMRO maintained its growth estimate for the Philippines, it noted that domestic demand may continue to slow throughout the year.
“In 2026, the effects of taxation are expected to be felt and moderate external activity, while domestic demand is expected to remain soft in several economies, especially Thailand and the Philippines,” AMRO said in its latest Regional Economic Outlook 2026.
Although the country may be in good shape this year, Mr. He also noted that global trade uncertainty and financial market volatility and energy shocks amid ongoing conflicts in the Middle East could moderate its economic growth.
“The conflict in the Middle East and the disruption caused by the Strait of Hormuz poses a very immediate risk to the outlook – a long-term disruption of global energy supply could push inflation higher and weigh on growth,” he said.
“Other key risks include unexpected changes in US trade policy, the uncertain trajectory of technology demand, and volatile global financial markets,” he added.
The disruption in oil trade has led to shocks in global energy prices, as the Philippines faces rising oil prices and looming fuel shortages as the war drags on.
AMRO Group Head and Lead Economist Allen Ng said the economy could grow faster if not for the economic slowdown caused by the global oil crisis since the war in the Middle East.
“I think there was a strong momentum for growth in the Philippines before the escalation of the conflict, and it was driven mainly by domestic demand activities,” Mr. Ng at a press conference on Monday.
“So, what we have seen is that if, and if, the Iran conflict (had not happened), growth would have been higher in the case of the Philippines,” he added.
EXTERNAL HEADINGS
Meanwhile, Mr. He said the Philippines will likely remain firm against tariffs and trade disruptions.
“The Philippines is less affected by the tax and trade disruptions, reflecting domestically driven growth and dependence on imports,” he said.
“However, risks remain in electronics and semiconductor exports. In order to reduce risks, the country should continue to diversify export markets, improve trade organization and logistics, and attract firms that want to move the supply chain to strengthen external stability,” he added.
The country’s exports grew 15.2% to $84.41 billion last year, surpassing the Bangko Sentral ng Pilipinas’ (BSP) forecast of 9% growth to $60 billion.
This year, the BSP expects exports to rise modestly by 3% to $65.3 billion amid reduced frontloading and higher trade costs, before rising 4% to $67.9 billion in 2027.
Information Technology and Business Process Management (IT-BPM) and financial sectors can help drive the country’s growth this year, said Mr.
However, he noted that the IT-BPM industry needs policies to support its transition to knowledge outsourcing (KPO) and global power centers (GCCs) operations.
“In the Philippines, highly knowledge-based services, such as IT-BPM and finance will continue to be the main sources of value-added creation,” said Mr. “However, as AI (artificial intelligence) becomes more prevalent, a concerted shift towards higher value segments, ie, KPOs, GCCs and digital commerce services is required.”
During the current economic shock, Mr. He also said the Philippines has a “sharper than usual mandate” in strengthening regional cooperation and addressing shared economic challenges as it takes over from ASEAN.
“The current time – when trade disruptions and energy shocks are simultaneously testing the region – gives the chairman a sharper mandate than usual,” AMRO chief economist said.
Mr. He said the National Government must follow domestic reforms and efforts to develop the region, especially through private investment, improving the delivery of infrastructure and strengthening financial markets.
“The current external situation raises the costs of delaying these changes,” he added.
This year, the Philippines took over the chairmanship of the 11-member regional bloc, made up of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam and Timor-Leste.
