IMF sees Philippine recovery by early 2027 if oil shocks are short-lived

By Katherine K.Chan, Reporter

WASHINGTON, D.C. — The Philippines could regain its economic momentum later this year or by early 2027 if the energy shocks prove temporary and the local investment climate improves, the International Monetary Fund (IMF) said.

In an exclusive interview with BusinessWorld, Krishna Srinivasan, director for Asia-Pacific Department at the IMF, said easing external pressures from the Middle East conflict and recovering domestic demand, particularly investments, could bring the country’s growth to 5.8% in 2027.

“So, the assumption there would be that if the shock is temporary, then things normalize and the Philippines goes back to a pickup in domestic demand and external demand,” he said on the sidelines of the IMF and World Bank’s Spring Meetings last week.

“If the shock dissipates, you could see the momentum starting later this year and beginning of next year,” he added.

The multilateral lender’s Philippine growth outlook for 2027 is significantly faster than its downgraded 4.1% estimate for this year and the 4.4% output recorded last year.

Still, Mr. Srinivasan noted that the Philippines may be worse off if the conflict intensifies, or in which energy price increases are higher and more persistent as well as if energy infrastructure takes more hits.

“I think the risk, all the numbers I’m quoting are from the reference scenario, which assumes that the shock is temporary. It’s a transient shock. It doesn’t last for that long. It dissipates very quickly,” he said.

“Now, if that doesn’t happen, right, then we have two scenarios in the WEO (World Economic Outlook) where we talked about the fact that growth could come down by one to two percentage points in Asia. And that, if you do the numbers of (the) Philippines, I think it would be much more significant,” he added.

For this year, lingering governance woes from the flood control corruption scandal in late 2025 and potential supply shocks from impending natural disasters are also clouding the growth outlook for the Philippines.

A widescale controversy linking Public Works officials, lawmakers and private contractors to corruption behind the government’s flood control projects stalled investments, public spending, and household consumption. This dragged the economy last year to its weakest growth since the pandemic.

Meanwhile, Mr. Srinivasan said a quick resolution to the war would also put the Association of Southeast Asian Nations (ASEAN) in a good position.

Efforts to boost domestic demand and a pickup in investments once uncertainties over the Middle East war fade could push the region’s gross domestic product (GDP) growth up next year, he added.

In its latest WEO report, the IMF said it sees ASEAN-5, comprised of Indonesia, Malaysia, the Philippines, Singapore and Thailand, expanding by 4.1% this year before improving to 4.4% next year.

“For ASEAN, this is a highly integrated region,” Mr. Srinivasan said. “So, if the external shocks subside, then you will see a fillip from external demand. And also in many regions where they are trying to boost domestic demand, that will start kicking in, whether it’s consumption or investment.”

“If the uncertainty in the world dissipates, you would expect investment to pick up, both to service domestic demand and to service external demand,” he added.

FURTHER INTEGRATION
The Philippines took the helm of ASEAN this year, a position Mr. Srinivasan said gives the country an opportunity to advance regional integration as it shares similar economic woes with its neighbors.

He noted that better integration would help cushion the region against external shocks.

“If ASEAN integrates more, it’s that much more of a buffer against external shocks. So, you know, you could have the demand coming from just within Asia that provides a fillip for investment and consumption,” he said.

Mr. Srinivasan said ASEAN could use this time to strengthen intra-regional trade, financial integration, and digitalization.

“ASEAN can talk about the fact that at a time when the region has been subject to… trade shocks (and) trade tensions, trade within the region can be a good buffer,” he said. “So, the Philippine (chairmanship) of the ASEAN could make that point even more vigorously, (and) to facilitate greater financial integration, greater digitalization. All that could help promote greater integration and greater trade within the region.”

The 11-member regional bloc should also enhance its domestic revenue mobilization, which the IMF’s APAC chief noted remains low in terms of its share to GDP, to build resilience against external shocks.

“If you look at countries in the ASEAN, their intake of revenues as a share of GDP is on the lower side, right? And so that is also an area where ASEAN as a group can do better, right, to make themselves more resilient to shocks,” he said.

The Philippines may also push for better use of the region’s services sector, he added.

Meanwhile, Mr. Srinivasan noted that ASEAN+3’s move to reinforce its regional crisis financing initiative comes timely amid the growing need for stronger trade and financial integration.

He said improving regional integration will also allow the Chiang Mai Initiative Multilateralization (CMIM) to gain more support than in the past.

“Only 20% of (ASEAN’s) trade is accounted for intra-regional trade,” Mr. Srinivasan said. “So, there is an impetus towards strengthening both trade integration and financial integration, right? And part of that is to see what kind of support you can provide to countries when they are subject to shocks.”

“And that’s where the CMIM is an important thing. It complements other aspects of the global safety net,” he added.

Philippine central bank Governor Eli M. Remolona, Jr. earlier said ASEAN leaders are expanding and strengthening the CMIM a multilateral currency swap arrangement within the region, to serve as their safety net amid the crisis.

The CMIM was established by the ASEAN member countries with China, Japan and South Korea following the 1997 Asian Financial Crisis to address crisis-driven liquidity concerns in the region.