Moody’s Analytics trims Philippines growth forecasts

By Katherine K. Chan, Reporter

THE PHILIPPINE ECONOMY is expected to expand by 4.9% this year, reflecting weak domestic momentum and the energy crisis caused by the Middle East conflict, Moody’s Analytics said.

In a report on Monday, Moody’s Analytics said it cut the Philippine gross domestic product (GDP) growth projection to 4.9% this year from 5.1% previously.

While it is faster than the post-pandemic low of 4.4% growth in 2025, it will be below the government’s 5-6% growth target for 2026.

“The revision reflects a reassessment of domestic momentum after weaker-than-expected expansion in 2025, rather than any major change in our geopolitical assumptions,” Moody’s Analytics Assistant Director and Economist Sarah Tan said in an e-mail. “In our baseline, we assume the Middle East conflict remains contained and ends soon, so the direct impact on Philippine growth should be limited.”

Still, Ms. Tan noted that the Middle East war could drag their outlook, as the net oil importer Philippines stands vulnerable to oil price shocks.   

“Higher import costs would feed into inflation, widen the trade deficit, and put pressure on the currency, which could force the Bangko Sentral ng Pilipinas (BSP) to pause its easing cycle or even tighten policy if second-round effects emerge,” she said.

In the report, Moody’s Analytics economists noted that the Middle East war could worsen economic shocks from the looming impact of the United States’ new tariff policies.

“This year is shaping up to be an even more difficult year for the region than originally envisaged,” Moody’s Analytics’ Stefan Angrick, Denise Cheok and Ms. Tan said. “A more severe and prolonged conflict in the Middle East would compound existing tariff pain.”

Earlier this year, US President Donald J. Trump threatened to impose a new 15% tariff on all goods entering the US, which analysts warned could dampen the country’s export recovery.

Moody’s Analytics also trimmed its Philippine growth projection to 5.2% from 5.4% for 2027, falling short of the government’s 5.5%-6.5% target.

For 2028, the think tank expects Philippine GDP to expand by 5.3%, unchanged from its previous forecast and well below the Development Budget Coordination Committee’s 6%-7% goal.

The Asia-Pacific (APAC) region is also expected to post a slower growth of 4% this year from 4.3% in 2025, before weakening further to 3.6% next year as new US tariffs bite and the Middle East war triggers major price shocks, Moody’s Analytics noted.

“Conflict in the Middle East has sent commodity prices surging, raising the risk of a fresh inflation surge. US tariff policy remains in flux, with the threat of higher import levies far from gone. And the jittery global backdrop is keeping financial markets on edge,” it said.

According to Moody’s, the Philippines is the sixth most reliant country on imported oil among APAC economies, with net energy imports accounting for over 50% of its total domestic consumption.

Ms. Tan earlier told BusinessWorld that oil price shocks due to the recent strikes on key energy facilities in the Middle East and trade disruptions in the region will likely be temporary, preventing a long-term inflation uptrend.

Moody’s projects inflation to end the year at an average of 2.5%, faster than its 2.3% forecast last month.

However, it lowered its inflation estimate for 2027 to 3% from 3.1% but maintained its 2028 forecast at 3.1%.

Faster inflation could prompt central banks in the region to hold or hike their policy rates, Moody’s said.

Ms. Tan has noted that the BSP will likely opt for a prolonged pause, but oil price shocks driving transport fares and electricity rates higher raise the odds of a rate hike.

SPENDING WOES
Meanwhile, Nomura Global Markets Research said sluggish government spending amid the lingering effects of last year’s flood control mess may derail the Philippines’ economic recovery in the coming months.

This came after government spending fell sharply in January, a trend Nomura economists said signals intensified fiscal tightening amid ongoing probes into the flood control graft scandal. 

“This reflects a worsening of the fiscal tightening, owing to the corruption controversy,” Nomura Global Markets Research Chief ASEAN Economist Euben Paracuelles and Southeast Asia Economist Nabila Amani said in a report dated March 20.

“As we have argued before, the lack of pre-procurement activity last year will contribute to weak budget disbursement in coming months before the government implements [their] catch-up spending plan,” they added.

Latest data from the Bureau of the Treasury showed that government spending came in at P303.5 billion in January, 23.9% lower than the P398.8 billion logged a year ago.

This marked the sixth straight month that expenditures declined on an annual basis.

Primary spending, which excludes interest payments, fell sharply by 40.32% to P175.5 billion during the month from P294.4 billion in January 2025.

Mr. Paracuelles and Ms. Amani said the significant decline in spending “suggests a limited near-term economic recovery,” posing additional pressure on their growth expectations especially amid emerging risks from the US-Israeli war on Iran.

Nomura sees the Philippine economy recovering from last year’s slump to expand by 5.3% this year.

Meanwhile, Moody’s Analytics’ Ms. Tan said the government’s decision to scale back its targeted infrastructure spending-to-GDP ratio would mean less support for domestic demand.

“The lower infrastructure spending target of around 4.3% of GDP versus the earlier planned 5.1% suggests public investment will provide less support to overall demand than previously expected,” she said.

The government wants infrastructure spending to make up 4.3% of GDP this year or about P1.3 trillion, lower than its earlier target of 5.1%.