By Katherine K. Chan, Reporter

THE MIDDLE EAST conflict threatens the Philippines’ growth prospects but a rebound in private spending and robust exports could still position the country as the second fastest-growing economy in the region, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

AMRO Chief Economist Dong He said Philippine gross domestic product (GDP) is expected to expand by 5.3% this year, unchanged from their forecast in January, and by 5.8% in 2027.

“This makes the Philippines one of the faster-growing economies in the region — above the ASEAN (Association of Southeast Asian Nations) average of 4.6% and the ASEAN+3 average of 4%,” Mr. He told BusinessWorld in an e-mail interview. “The acceleration reflects an expected recovery in private consumption and stronger exports.”

If both projections hold true, the Philippines would be the second fastest-growing economy within the ASEAN, only trailing Vietnam which is seen to expand by 7.4% this year.

The country is also seen to outpace 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 also expected to surpass its 4.4% growth last year or when the flood control graft scandal slowed government spending, household consumption and investments in the country.

AMRO’s projections are within the government’s 5-6% GDP growth goal for this year and 5.5-6.5% for 2027.

Household spending, which accounts for over 70% of the country’s GDP, grew by 3.8% in the fourth quarter, the weakest pace seen since the -4.8% in the first quarter of 2021. Full-year household spending growth eased to 4.6% in 2025 from 4.9% in 2024.

Although AMRO maintained its growth estimate for the Philippines, it noted that domestic demand may continue to be subdued throughout the year.

“In 2026, tariff effects are expected to materialize and dampen external activity, while domestic demand is also expected to remain soft in a few economies, notably Thailand and the Philippines,” AMRO said in its latest Regional Economic Outlook for 2026.

While the country may be well positioned this year, Mr. He also noted that global trade uncertainties and financial market volatility and energy shocks amid the ongoing conflict in the Middle East could weigh on its economic growth.

“The conflict in the Middle East and the resulting disruption to the Strait of Hormuz pose the most immediate risk to the outlook — a protracted disruption to global energy supply could push inflation higher and weigh materially on growth,” he said.

“Other key risks include unpredictable US trade policy shifts, the uncertain trajectory of technology demand, and volatile global financial markets,” he added.

Oil trade disruptions have led to energy price shocks globally, with the Philippines facing oil price surges and looming fuel shortages as the war drags on.

AMRO Group Head and Lead Economist Allen Ng said the economy could grow even faster if not for the economic drags triggered by the global oil crisis from the Middle East war.

“I think there was strong momentum in growth in the Philippines prior to the escalation of the conflict, and it’s driven a lot by domestic demand activities,” Mr. Ng said at a press briefing on Monday.

“So, what we have seen is that if, again, if the Iran conflict (had) not occurred, the growth could have been higher for the case of the Philippines,” he added.

EXTERNAL HEADWINDS
Meanwhile, Mr. He said the Philippines will likely remain resilient against tariff and trade disruptions.

“The Philippines has been relatively less affected by tariff and trade disruptions, reflecting its more domestically driven growth and lower reliance on goods exports,” he said.

“However, vulnerabilities remain in electronics and semiconductor exports. To mitigate risks, the country should further diversify export markets, improve trade facilitation and logistics, and attract firms looking for supply chain relocation to strengthen external resilience,” he added.

The country’s goods exports grew by 15.2% to $84.41 billion last year, exceeding the Bangko Sentral ng Pilipinas’ (BSP) projected 9% growth to $60 billion.

For this year, the BSP expects goods exports to rise modestly by 3% to $65.3 billion amid reduced front loading and elevated trade costs, before picking up by 4% to $67.9 billion in 2027.

The information technology and business process management (IT-BPM) and finance sectors may also help drive the country’s growth this year, Mr. He said.

However, he noted that the IT-BPM industry needs policies to support its shift toward knowledge process outsourcing (KPO) and global capability centers (GCCs) activities.

“For the Philippines, the high value-added knowledge-based services, such as the IT-BPM and finance would continue to be the key sources of value-added creation,” Mr. He said. “However, with AI (artificial intelligence) becoming increasingly prevalent, a concerted shift is required toward higher-value segments, namely, KPO, GCCs and digital trade services.”

Amid current economic shocks, Mr. He also said the Philippines has a “sharper mandate than usual” in tightening regional cooperation and addressing shared economic challenges as it takes the helm in the ASEAN.

“The current moment — where trade disruptions and an energy shock are testing the region simultaneously — gives the chairmanship a sharper mandate than usual,” AMRO’s chief economist said.

Mr. He said the National Government must pursue local reforms alongside regional development efforts, especially by drawing in private investments, enhancing infrastructure delivery and strengthening capital markets.

“The current external environment raises the cost of delaying these reforms,” he added.

This year, the Philippines assumed chairship of the 11-member regional bloc, composed of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam and Timor-Leste.

By Katherine K. Chan, Reporter

THE Bangko Sentral ng Pilipinas’ (BSP) easing cycle has likely ended, with rate hikes now on the table as energy shocks amid the Middle East war could stoke inflation this year, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

In its latest Regional Economic Outlook for 2026, AMRO said it sees the country’s consumer price index (CPI) picking up to 3.9% this year if oil prices hold around $80-$90 per barrel.

This is faster than its previous 3.2% estimate and the 1.7% inflation print in 2025.

By next year, AMRO sees inflation cooling to 3.6%.

If realized, the CPI would settle near the upper end of the central bank’s 2%-4% goal for two straight years.

AMRO Chief Economist Dong He noted that the Philippines’ heavy reliance on imported oil from the Middle East makes it vulnerable to price and supply shocks.

“The Philippines is one of the more affected countries in the region,” he told BusinessWorld in an e-mail interview. “As a net oil and gas importer, with 98% of its oil imports sourced from the Middle East, the Philippines is exposed to higher oil prices and potential supply disruptions.”

For now, Mr. He said the BSP may adopt a “wait-and-see” approach while assessing the duration of the oil supply shocks.

“The policy advice is really to probably wait and see, and see how long the shock would last. I think it’s the persistence of the shock that matters,” he said at a press briefing on Monday. “If the persistence is longer than expected, then of course, and we see continued inflationary pressures, the central bank may need to react because it has an inflation target range of 1% plus and minus around the 3% target.”

Asked if he still sees room for further easing, Mr. He said: “We don’t see space for cutting rates at the moment because we see upside risks to inflation in the Philippines.”

He noted that the central bank may consider monetary policy tightening if inflation breaches the BSP’s target band for a prolonged period.

“If it goes out of the range, then there may be a need to review, particularly if the shock is expected to last longer, and then the central bank may need to tighten, and that’s the framework that’s in place,” Mr. He said.

Last month, the BSP kept its benchmark rate unchanged at 4.25% in an off-cycle meeting to calm markets worried over uncertainties arising from the US-Iran war.

Its next regular policy meeting is scheduled for April 23.

BSP Governor Eli M. Remolona, Jr. said the Monetary Board arrived at the decision after noting that the current price pressures are supply-driven, and hiking rates immediately risk derailing the country’s economic recovery.

He added that future monetary policy decisions will consider second-round price effects, particularly a potential uptick in transport fares, food and fertilizer prices, electricity rates and wages.

Mr. He said the central bank must “respond decisively” once such second-round effects materialize.

However, Mr. He told BusinessWorld that the BSP must be cautious in adjusting its monetary policy as the country’s growth momentum remains weak.

“Given heightened uncertainty, the authorities should remain vigilant and stand ready to recalibrate policy parameters to mitigate the impact of external shocks,” he added. “Specifically, amid rapidly evolving geopolitical tensions, volatile energy prices, and weaker growth momentum, the BSP should remain cautious in making monetary policy adjustments.”

AMRO expects the Philippine economy to expand by 5.3% this year, though noted that subdued domestic demand and energy shocks poses risks to its growth outlook.

“Meanwhile, enhanced coordination between fiscal and monetary authorities is required to cushion the impact of supply-driven inflation and prevent adverse effects on growth,” Mr. He added. “In this regard, the government could consider timely administrative measures, such as targeted subsidies to highly exposed sectors and reducing tariffs on energy imports.”

AMRO Group Head and Lead Economist Allen Ng also noted that monetary and fiscal authorities should prioritize preventing the supply-driven oil shocks from worsening further.

“I think the key point that we wanted to highlight is the fact that, in this environment, the policy priority is really to stop a supply-driven shock from becoming broader and more persistent,” Mr. Ng said during the briefing.

“That means staying alert for second-round effects, with monetary policy remaining cautious, and fiscal policy focused on timely, well-targeted support for the most exposed sectors and households,” he added.