ING BANK NV downgraded its economic growth projection for the Philippines to 4.5% in 2026 from 5.2% previously, as it expects higher oil prices to raise the country’s import bill and shave 80 basis points (bp) off growth.
In a commentary published by ING Bank’s Economic and Financial Analysis Division, Regional Head of Research for Asia-Pacific Deepali Bhargava said that crude shortages and surging pump prices are amplifying downside pressures on the economy.
“The ultimate economic impact will depend on how long the disruption persists, but the shortages are already amplifying existing weaknesses in domestic demand,” she said.
“The direct hit to gross domestic product (GDP) will come through a higher oil and gas import bill, which is currently about 4% of GDP. Indirect effects will stem from rising transportation and logistics costs, which will feed through to consumer prices,” she added.
As petroleum accounts for 46% of the country’s fuel consumption, in the base case scenario that Brent oil prices average $80-85 per barrel (bbl), the higher oil import bill alone could trim roughly 80 bp off GDP growth.
“Against this backdrop, we are revising down our 2026 GDP growth forecast to 4.5%, from 5.2% previously. The economy is entering this period of elevated energy costs from a position of vulnerability, following an already weak 2025 performance driven by a sharp contraction in government spending,” she added.
The Philippines is among the most oil-dependent countries in the Asia-Pacific, with over 95% of oil imports coming from the Persian Gulf, leaving it exposed to price swings and supply disruptions.
“The transportation sector is the largest consumer of oil products, meaning fuel costs feed directly through to logistics and household expenses,” she said.
“This vulnerability is further aggravated by limited domestic fuel reserves, with the energy secretary noting that the country has roughly 45 days of diesel supply remaining,” it added.
In response, the government has been trying to secure alternative supply sources, including a 700,000 barrel shipment from Russia.
“Yet with national consumption estimated at 450-487k barrels per day, this volume would cover only a few days of demand unless additional shipments are secured from Russia or China,” she said.
With retail fuel prices remaining fully market-linked, pump prices in the Philippines have more than doubled since the start of the Persian Gulf crisis.
As such, the government introduced targeted subsidy measures and passed a law that will permit the suspension or partial reduction of excise duties on selected petroleum products.
“While the fiscal cost is currently modest at around 0.07% of GDP, the Philippines’ relatively thin fiscal buffers mean that any significant expansion of support would increase pressure on government finances,” she said.
She said despite having the room to extend fuel subsidies due to weaker spending in 2025, fiscal space remains limited.
“Any additional support would risk further delaying capital expenditure spending, which would in turn slow the broader growth recovery. Even if spending normalizes somewhat in 2026, the drag from tight fiscal conditions on confidence and economic activity will take time to fade,” she said.
“With consumer sentiment still weak, we expect the recovery to remain uneven. As a result, our 2026 growth forecast remains at 4.5%, with risks clearly tilted to the downside,” she added.
Meanwhile, she said that even prior to the war, labor market conditions had weakened, with the unemployment rate climbing to 5.8% in January 2026, the highest since the 6% posted in June 2022.
“Weaker government spending has now translated into softer private investment, job losses, and a slowdown in wage gains. These trends are likely to intensify as higher oil prices raise production costs, discourage hiring, and compress real incomes,” she added.
Ms. Bhargava said the weaker external balances are likely to drive the peso lower but said that the Bangko Sentral ng Pilipinas (BSP) may cut rates in April.
The BSP on Thursday said that it committed to “anchoring inflation expectations and taking a forward-looking approach amid the risk of second-round effects from rising oil prices.”
Citing precedents in 2022 and 2018, she said the BSP had hiked rates once inflation breached the upper end of its 4% target.
“With Brent crude prices up roughly 40% month on month in March, headline inflation is now likely to exceed the target band even under our base case. This implies that the consumer price index could breach 4% as early as March, raising the probability of a rate hike as early as April,” she said.
However, she said that unlike in 2022, the economy is struggling, as reduced government spending in 2025 has dragged down both business investment and household consumption.
“Given this weaker growth setting, and assuming the current conflict eases soon, our base case is that the BSP remains on hold in April. That said, if oil prices stay above $100/bbl in our longer-war scenario and with limited signs of de-escalation in the ongoing conflict, the BSP may be compelled to consider raising rates as soon as April,” she added.
She said higher oil prices are likely to widen the Philippines’ current account deficit to 4% of GDP in the second quarter from 2.4% in the first quarter if oil prices are sustained above $100.
“The BSP’s recent guidance that it is not defending any specific exchange rate level and that intervention in the foreign exchange (FX) market remains modest suggests limited resistance to further currency weakness. While rate differentials matter, historical experience shows that FX performance is more closely driven by external balances,” she said.
“With the dollar supported by safe haven flows and the Federal Reserve unlikely to ease aggressively in the near term, domestic tightening alone is unlikely to materially shift the peso’s trajectory. A move beyond P61/dollar remains a clear risk,” she added.
On Friday, the peso hit a new record low, weakening by 32 centavos to close at P60.55, the Bankers Association of the Philippines reported.
Meanwhile, the BSP raised its inflation forecast for 2026 to 5.1% from 3.6% previously. If realized, the headline print would breach its 2%-4% target. — Justine Irish D. Tabile
