By Bettina V. Roc, Associate Editor
THE International Monetary Fund (IMF) now expects Philippine economic growth this 12 months to fall far below the federal government’s goal because the oil shock from the Middle East war adds to the impact of a graft scandal that stalled public spending.
The IMF slashed its 2026 gross domestic product (GDP) growth forecast to 4.1% from 5.6% in January, its latest World Economic Outlook (WEO) released on Tuesday showed.
That is way lower than the federal government’s 5%-6% goal and likewise slower than the 4.4% full-year expansion in 2025, which was a post-pandemic low attributable to a corruption scandal involving flood control projects.
“Growth within the Philippines is revised downward by 1.5 percentage points for 2026, relative to January, with the war shock compounding the negative base effects from a weaker-than-expected 2025 outturn related to a pointy decline in public investment and confidence,” the IMF said.
Meanwhile, the IMF kept its 2027 growth projection at 5.8%. That is inside the federal government’s 5.5%-6.5% growth goal.
“Risks to growth are tilted to the downside while inflation risks are tilted to the upside, reflecting the danger of a chronic war within the Middle East, further escalation of geopolitical tensions, and better trade policy uncertainty,” the IMF said.
Domestic risks stem from the impact of the corruption scandal, extreme climate events, and “weaker-than-expected reform momentum,” it added.
The 2026 forecast for the Philippines matches its expected growth pace for ASEAN-5, which incorporates Indonesia, Malaysia, Singapore, and Thailand.
For the Southeast Asian economies with specific forecasts within the WEO, the Philippines’ GDP growth this 12 months is predicted to trail Vietnam’s 7.1%, Indonesia’s 5%, and Malaysia’s 4.7%. It is simply expected to expand faster than Thailand (1.5%) and Singapore (3.5%) this 12 months.
“In several South and Southeast Asian economies, disruptions within the Middle East are expected to scale back tourism and remittance inflows, thereby weakening domestic demand,” it said.
This comes because the IMF also cut its global growth projection for this 12 months because it expects the Middle East conflict to threaten the outlook, with the highly volatile situation also leading it to stipulate several scenarios depending on how long the war lasts or if it expands further.
Under its reference forecast, which assumes that the war’s duration, intensity, and scope might be limited and mean that disruptions could recede by midyear, the IMF sees the worldwide economy growing by 3.1% this 12 months, down from 3.3% in January. It retained its 2027 forecast at 3.2%.
“The worldwide outlook has abruptly darkened following the outbreak of war within the Middle East on Feb. 28, 2026. The closure of the Strait of Hormuz and serious damage to critical production facilities in a region central to global hydrocarbon supply could cause an energy crisis on an unprecedented scale,” IMF Economic Counsellor and the Director of Research Pierre-Olivier Gourinchas said within the report’s foreword.
“The war interrupted what had been a gentle growth trajectory… The duration and scale of the conflict and the time it’ll take for energy production and transit to normalize after the tip of hostilities will determine the last word size of the shock to the worldwide economy.”
READY TO TIGHTEN
Meanwhile, the IMF expects Philippine headline inflation to average 4.3% this 12 months and three.2% in 2027. Each are faster than the two.8% and three% estimates it gave following the conclusion of its Article IV Consultation in December last 12 months.
The Bangko Sentral ng Pilipinas (BSP) expects the patron price index to average 5.1% this 12 months, above its 2%-4% goal and last 12 months’s 1.7% outturn because it expects higher global oil prices attributable to the war to drive up domestic food, fuel, energy, and transport costs. For 2027, its forecast is 3.8%.
Philippine headline inflation already breached the central bank’s goal in March, coming in at 4.1%, which was the fastest pace in nearly two years or for the reason that 4.4% in July 2024 — also the last time that the monthly print was above goal. This was also higher than the BSP’s own 3.1%-3.9% forecast for the month.
Within the three months to March, inflation averaged 2.8%.
“An accommodative monetary policy stance stays appropriate amid a widening negative output gap; however the BSP ought to be able to tighten monetary policy if risks of de-anchoring inflation expectations arise,” the IMF said.
In an off-cycle meeting last month, the Monetary Board left benchmark rates of interest unchanged, but said that they continue to be vigilant about potential price risks amid the war.
BSP Governor Eli M. Remolona, Jr. has said that monetary policy has limited effectiveness against the supply-driven spikes in prices, but added that they’re able to act as needed to maintain inflation expectations anchored and temper the potential effects of the oil price shock.
The BSP last hiked benchmark rates in October 2023. Its policy rate now stands at 4.25% following 225 basis points price of cuts because it began its now-paused easing cycle in August 2024.
The IMF said policymakers will need to seek out the balance between preserving growth and keeping inflation in check, while also ensuring that they’ve enough fiscal ammo to support those who might be hit by rising costs attributable to the energy shock.
“Central banks ought to be able to act decisively consistent with their mandates. Monetary policy should preserve price stability and be rigorously attuned to spillovers from actual inflation to inflation expectations, especially within the medium- to long-term horizon,” the multilateral lender said.
“With the memories of the post-pandemic inflation surge still fresh, second-round effects could possibly be larger than they were in 2021-2022. At the identical time, tightening prematurely could possibly be destabilizing, if financial conditions tighten further… or consumer and business confidence declines. Reacting strongly to flexible commodity prices, when supply constraints are present only within the related sectors, brings down inflation fast but risks a recession later.”
Meanwhile, the IMF sees the Philippines’ current account deficit widening to -4.4% of GDP this 12 months from -3.3% in 2025. For 2027, the gap is seen at -3.5% of economic output. Each are larger than the -3.4% and -3.1% forecasts published in December.