S&P hikes Philippine growth forecast but oil crisis poses risks

By Katherine K. Chan, Reporter

A GRADUAL RECOVERY in investments and robust technology exports could drive Philippine economic growth to 5.8% this year, although the ongoing oil crisis poses a crucial risk, S&P Global Ratings said.

In a report on Wednesday, the debt watcher said it sees the Philippine gross domestic product (GDP) expanding by 5.8% in 2026, slightly higher than its earlier projection of 5.7%.

“We have marginally raised our 2026 growth forecast for the Philippines to 5.8% from 5.7%, reflecting a gradual normalization of investment and continued strength in technology-related exports,” Vishrut Rana, a senior economist for Asia-Pacific at S&P Global Ratings, said in an e-mailed reply to questions.

If realized, the economy will grow much faster than last year when GDP grew by 4.4%. Economic growth hit a post-pandemic low in 2025 as the flood control corruption mess weakened investments and domestic consumption.

In 2025, gross capital formation, the investment component of GDP, slid by 2.1% after it posted its steepest drop in over four years of 10.9% in the fourth quarter.

S&P’s growth estimate for the Philippines is also higher than its 4.5% revised growth forecast for the Asia-Pacific region excluding China.

At 5.8%, growth would likewise come near the upper end of the government’s 5%-6% target. President Ferdinand R. Marcos, Jr., however, said they might revise their targets considering the impact of the Middle East war.

Mr. Rana noted that the Philippines faces risks to its growth prospects as the Middle East turmoil continues to jolt oil markets.

“Energy disruption is a key risk to the economy this year,” he said, noting the country’s heavy reliance on energy imports, which accounted for 3.3% of GDP last year.

“If energy supplies face sustained disruption, we see downside risk to our economic projections,” Mr. Rana added.

Mr. Marcos placed the Philippines under a state of national energy emergency for one year, after acknowledging that the oil trade disruption and price shocks threaten the country’s energy security. 

Meanwhile, economists from the University of Asia and the Pacific (UA&P) see first-quarter GDP growth remaining weak amid high unemployment and an anticipated inflation uptick triggered by the Middle East war.

“Total unemployed persons reaching 2.97 million in January, the highest since June 2022, and higher inflation starting March (to over 4% initially) would bring Q1-2026 GDP growth back to a pace (of around 3%) similar to Q4-2025,” UA&P said in its latest The Market Call released on Wednesday.

This as soaring oil prices could accelerate inflation to a near two-year high of 4.2% in March, it added.

“Inflation will likely rise sharply to 4.2% year on year in March, compared with 2.4% previously, and may continue climbing until crude oil prices stabilize or decrease as more producers respond to higher prices and as Iran and the US allow additional tankers to transit the Strait of Hormuz,” UA&P said.

If realized, the headline print will hit the fastest in 20 months or since 4.4% in July 2024, likewise marking the first time since then that inflation will breach the central bank’s target.

RATE HIKE LATER THIS YEAR
Emerging economic headwinds from the Middle East war may also prompt the Bangko Sentral ng Pilipinas (BSP) to raise its policy rate by 25 basis points (bps) later this year, S&P’s Mr. Rana said.   

“We expect a modest 25-bp rate hike for the Philippines to 4.5% during 2026, based on the energy price outlook,” he said. “Given inflation is contained, the BSP has policy space and is unlikely to tighten immediately.” 

This came after S&P raised its inflation projection to 3.4% for this year from 2.7% previously, and to 3.2% for 2027 from 3%.

“While we project average inflation to remain within the target range this year, the acceleration in price gains could be significant due to the potential impact of the energy shock,” Mr. Rana said. “The central bank may also be watching the effects of a weaker currency.”

At the same time, UA&P said the peso may continue to trade above P59 against the dollar due to rising inflationary pressure. 

“Export performance should remain strong, achieving double-digit growth. However, the peso-dollar exchange rate may stay above P59/$ due to rising local inflation and increased demand for foreign currency assets as a hedge,” it noted.

Last week, the peso breached the P60 level for the first time as the greenback strengthened amid the US-Israeli war on Iran. It finished at a new all-time low of P60.30 versus the dollar on Monday, but later returned to the P59 level after closing at P59.95 on Tuesday. 

BSP Governor Eli M. Remolona, Jr. earlier gave hawkish signals, hinting at a potential rate hike if sustained $100 per barrel oil price pushes inflation beyond 4%.

The BSP wants inflation to stay within the 2%-4% range, with 3% as its “sweet spot.”

If it decides to tighten, the central bank will be reversing its near two-year easing cycle, where it has slashed the key interest rate by 225 bps to an over three-year low of 4.25%. It last lifted the policy rate in October 2023. 

Meanwhile, S&P trimmed growth projections for 2027 and 2028 to 6.2% from 6.5% previously.

“We have lowered our growth forecasts for 2027 and 2028 on slower domestic demand momentum and moderating growth in established sectors such as BPO (business process outsourcing,” Mr. Rana said. “We expect growth in the BPO and tech-related spaces to continue to be brisk, albeit slower than in recent years.”