By Justine Irish D. Tabile, Senior Reporter
GROWTH PROJECTIONS for the Philippines are more likely to be revised downward again because the prolonged conflict within the Middle East continues to weigh on economic activity, according to Asian Development Bank (ADB) Country Director for the Philippines Andrew Jeffries.
“After we did the Asian Development Outlook in very early April, it had several scenarios including more downside scenarios, however the foremost scenario was based on what I’d call an early stabilization scenario,” he told BusinessWorld in an interview.
“In order that was envisioning if this crisis got resolved and things went back to normal inside a number of months. That obviously has not happened,” he added.
In April, the Philippine-based multilateral lender cut its Philippine gross domestic product (GDP) growth forecast to 4.4% from 5.3% previously projected in December.
The revised forecast falls below the federal government’s 5-6% GDP growth goal for 2026 and matches the country’s growth pace last yr.
For 2027, the ADB expects the Philippine economy to expand by 5.5%, on the low end of the federal government’s 5.5-6.5% goal range.
On April 29, the ADB downgraded its growth outlook and raised inflation forecasts for developing Asia and the Pacific, reflecting the impact of the conflict. The lender now expects the region to grow by 4.7% in 2026 and 4.8% in 2027, lower than its earlier 5.1% forecast for each years.
Meanwhile, regional inflation is projected to speed up to five.2% this yr and 4.1% next yr from the sooner forecasts of three.6% and three.4%, respectively.
Mr. Jeffries said inflation within the region could rise as high as 7.4% this yr under a severe downside scenario.
“Now, the Philippines is being disproportionately negatively affected in comparison with other countries. Within the Philippines we just saw 7.2% (inflation) recently, so the Philippines is unfortunately experiencing that type of way more downside quicker due to vulnerability,” he said.
“Just given the brand new numbers which have come out for the quarter that showed lower figure GDP, I suppose we will probably be anticipating lower projections in July, given current trends,” he added.
The Philippine economy expanded by 2.8% in the primary quarter, slower than the previous quarter’s 3% growth, reflecting the lingering effects of last yr’s corruption scandal and soaring oil prices triggered by the Middle East conflict.
Meanwhile, headline inflation accelerated to 7.2% in April, exceeding the Bangko Sentral ng Pilipinas’ (BSP) 5.6%-6.4% forecast and a pair of%-4% goal range.
WEAKER PESO
Jesus Felipe, a professor at Carlos L. Tiu School of Economics on the De La Salle University (DLSU), said the continued depreciation of the peso will further strain the economy.
“The issue is the sort of economy that we’ve is a really weak economy… It’s an economy that has problems really sustaining production capability,” he told Money Talks with Cathy Yang on One News on Thursday.
“Ultimately, what will occur is that within the short run, on the very least, the present account deficit goes to deteriorate,” he added.
Mr. Felipe said he expects the peso to weaken to P63.5 against the dollar by August.
The peso closed at a record low of P61.75 per dollar on Tuesday, unchanged from Monday’s finish.
While a weaker peso may profit exporters, Mr. Felipe said this, coupled with soaring fuel prices, would mean costlier imports which immediately feeds into inflation and lower real incomes.
He said the Philippines should use the crisis as a possibility to diversify the economy and increase the value-added component of local manufacturing.
The DLSU May economic report projected Philippine GDP growth at 3.11% in 2026, well below the federal government’s 5-6% goal.
It also projected growth at 3.93% in 2027 and 5.71% in 2028, each below the federal government’s targets of 5.5-6.5% and 6-7%, respectively.
“In the meanwhile, it’s a matter of uncertainty. This will not be really a deep crisis. We’re not into that. It’s not that growth is negative,” he said.
Mr. Felipe said the uncertainty stems from a mix of peso depreciation and last yr’s corruption scandal.
“Everybody’s simply waiting to see what happens. So, consumption is de facto subdued and investment is de facto subdued… The recovery will start happening in 2028. It’s very, very essential to note that even with the recovery, we won’t reach the targets that the federal government has been, during this administration, announcing, which is to grow 6.5% to eight%,” he added.
Mr. Felipe said the federal government should implement reforms aimed toward strengthening local firms and improving export competitiveness. He also cited the necessity for stronger fiscal policy support to enhance productivity.
Without structural reforms, the Philippine economy will remain vulnerable to future crises, he added.
“If the federal government doesn’t do anything toward the long run, a few many years, even as much as 2050, what we’ll see is what we call… a weak economy that will probably be shaken by the following crisis, be it domestic or international,” he added.
Individually, Bank of America Global Research said higher oil prices could significantly widen the country’s current account deficit.
“Oil prices around $90-$100 range would translate into roughly 1-1.3% widening of the present account deficit to 4%,” it said.
“We’ve got previously argued that a sustainable current account deficit for the Philippines is 2-2.5% of GDP which could be financed via foreign direct investment in government funding flows,” it added.
Bank of America (BofA) said a current account deficit nearing 4% would increase reliance on the BSP’s intervention to limit depreciation pressures on the peso.
It also warned that persistently high oil prices could worsen the country’s fiscal position as the federal government rolls out measures to cushion the impact of inflation.
Nonetheless, BofA said stronger intervention within the foreign exchange market can be difficult to sustain and will raise concerns over the adequacy of foreign exchange reserves.
The bank expects the peso to weaken to P63 per dollar within the second quarter and to P64 per dollar by yearend amid elevated oil prices.
“An oil price spike stays the important thing external risk for the Philippines. Domestically, political uncertainty may weigh on public spending, sentiment and growth,” it added.