ADB likely to cut PHL growth outlook anew

By Justine Irish D. Tabile, Senior Reporter

GROWTH PROJECTIONS for the Philippines are likely to be revised downward again as the prolonged conflict in the Middle East continues to weigh on economic activity, according to Asian Development Bank (ADB) Country Director for the Philippines Andrew Jeffries.

“When we did the Asian Development Outlook in very early April, it had several scenarios including more downside scenarios, but the main scenario was based on what I would call an early stabilization scenario,” he told BusinessWorld in an interview.

“So that was envisioning if this crisis got resolved and things went back to normal within a few 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 government’s 5-6% GDP growth target for 2026 and matches the country’s growth pace last year.

For 2027, the ADB expects the Philippine economy to expand by 5.5%, at the low end of the government’s 5.5-6.5% target 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 both years.

Meanwhile, regional inflation is projected to accelerate to 5.2% this year and 4.1% next year from the earlier forecasts of 3.6% and 3.4%, respectively.

Mr. Jeffries said inflation in the region could rise as high as 7.4% this year under a severe downside scenario.

“Now, the Philippines is being disproportionately negatively affected compared to other countries. In the Philippines we just saw 7.2% (inflation) recently, so the Philippines is unfortunately experiencing that kind of much more downside quicker because of the vulnerability,” he said.

“Just given the new numbers that have come out for the quarter that showed lower figure GDP, I guess we will be anticipating lower projections in July, given current trends,” he added.

The Philippine economy expanded by 2.8% in the first quarter, slower than the previous quarter’s 3% growth, reflecting the lingering effects of last year’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 2%-4% target range.

WEAKER PESO
Jesus Felipe, a professor at Carlos L. Tiu School of Economics at the De La Salle University (DLSU), said the continued depreciation of the peso will further strain the economy.

“The problem is the type of economy that we have is a very weak economy… It is an economy that has problems really sustaining production capacity,” he told Money Talks with Cathy Yang on One News on Thursday.

“In the end, what is going to happen is that in the short run, at the very least, the current account deficit is going 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 benefit exporters, Mr. Felipe said this, coupled with soaring fuel prices, would mean more expensive imports which immediately feeds into inflation and lower real incomes.

He said the Philippines should use the crisis as an opportunity 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 government’s 5-6% target.

It also projected growth at 3.93% in 2027 and 5.71% in 2028, both below the government’s targets of 5.5-6.5% and 6-7%, respectively.

“For the time being, it’s a question of uncertainty. This is not 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 combination of peso depreciation and last year’s corruption scandal.

“Everybody’s simply waiting to see what happens. So, consumption is really subdued and investment is really subdued… The recovery will start happening in 2028. It’s very, very important to notice that even with the recovery, we will not reach the targets that the government has been, during this administration, announcing, which is to grow 6.5% to 8%,” he added.

Mr. Felipe said the government should implement reforms aimed at strengthening local firms and improving export competitiveness. He also cited the need for stronger fiscal policy support to improve productivity.

Without structural reforms, the Philippine economy will remain vulnerable to future crises, he added.

“If the government doesn’t do anything toward the long term, a couple of decades, even up to 2050, what we will see is what we call… a weak economy that will be shaken by the next crisis, be it domestic or international,” he added.

Separately, 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 current account deficit to 4%,” it said.

“We have previously argued that a sustainable current account deficit for the Philippines is 2-2.5% of GDP which can 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 government rolls out measures to cushion the impact of inflation.

However, BofA said stronger intervention in the foreign exchange market would be difficult to sustain and could raise concerns over the adequacy of foreign exchange reserves.

The bank expects the peso to weaken to P63 per dollar in the second quarter and to P64 per dollar by yearend amid elevated oil prices.

“An oil price spike remains the key external risk for the Philippines. Domestically, political uncertainty may weigh on public spending, sentiment and growth,” it added.