Philippine GDP forecast at 2.5% lags ASEAN peers

Bank of America Global Research forecasts the Philippine gross domestic product to expand by 2.5% in 2026. This projection ties the country with Thailand for the lowest growth rate among major ASEAN economies. Vietnam is expected to lead the region with 8.2% growth. Indonesia and Malaysia follow with 5.3% and 5.2% respectively. Singapore is projected to grow by 5.1%. The Philippines will miss its official growth target for the fifth straight year if this estimate holds. Economic managers aim for 3.5% to 4.5% growth this year. The gap reflects persistent weakness in domestic demand. Investment spending remains at low levels. Household consumption has slowed significantly. Public spending has not fully offset private sector declines.

The Philippine economy contracted to 2.3% in the second quarter of 2026. This marks a post-pandemic low for quarterly growth. First-half annual growth stands at 2.6%. A flood control corruption scandal weighed on public construction projects. Energy shocks from the Middle East conflict dampened household spending. Domestic demand grew by only 0.9% in the second quarter. Net trade provided the primary lift to overall GDP. Private consumption slowed during the period. Investments shrunk across key sectors. Government spending failed to cushion the economic blow. BofA economists attribute the lag to these structural and external pressures.

Inflation trends shape monetary policy

Headline inflation eased to 6.1% in August. This is a five-month low from 6.2% in July. Lower food and utility prices drove the decline. August was the sixth consecutive month above the central bank’s 3% target. The average headline inflation rate stands at 5.2% to date. The Bangko Sentral ng Pilipinas raised its key policy rate by 25 basis points. This marks the third consecutive tightening move. The policy rate now sits at 5.0%, a one-year high. Cumulative hikes total 75 basis points since the cycle began. BofA expects this move to end the tightening cycle. Slower growth and softer inflation peaks may restrain further hikes. The central bank acted preemptively to manage inflation risks.

Risks persist despite slower growth

BofA identifies renewed oil price spikes as a key risk. Rising rice prices also pose inflationary pressure. A potential 12% increase in minimum daily wages adds to costs. These factors could push inflation higher than currently forecast. Oxford Economics notes political risks weigh on regional growth prospects. The Philippines faces exposure to procurement issues. Vice-President Sara Duterte’s impeachment proceedings add uncertainty. Remittances from overseas Filipino workers continue to support household incomes. This inflow helps stabilize consumer spending. Despite these supports, the overall growth outlook remains constrained. BofA maintains its 3.5% growth forecast for 2027. The report was issued by GN markets/growth (en-US) on September 8.