ECONOMIC managers have slashed this year’s growth target due to the war in the Middle East and the lingering impact of last year’s massive flood control project scandal.
Socioeconomic Planning Secretary Arsenio Balisacan said on Monday that following a recent meeting, the interagency Development Budget Coordination Committee (DBCC) had cut the 2026 growth goal to 3.5-4.5 percent from 5.0-6.0 percent.
“The second quarter is still a little problematic in the sense that we still see some of the lag effects of the previous quarter and the last half of last year's effects coming in,” he said in a television interview.
Balisacan acknowledged that growth projections needed to be reviewed after the economy expanded by just 2.8 percent in the first quarter, well below market expectations and the then 5.0- to 6.0-percent goal — lowered from 6.0-7.0 percent in December due to the corruption scandal.
The Department of Economy, Planning, and Development chief said the disappointing result was largely due to temporary factors, including delays in government spending and implementation bottlenecks in infrastructure projects.
If not for the flood control scandal, the economy could have grown by 3.8 percent, Balisacan claimed.
“The underspending alone contributed to almost like a 1 percentage point,” he said.
“The first quarter growth would have been 3.8 percent instead of 2.8 percent if the spending did move as we expected.”
Government spending rebounded in the first quarter, growing by 4.8 percent after slowing to just 0.4 percent in the last three months of 2025, but it was markedly slower compared to the 18.7-percent surge seen in January-March last year.
Mounting external risks are also expected to continue weighing on the Philippine economy, with one of the biggest concerns being the energy shock caused by the war in the Middle East.
The country is seen as particularly vulnerable given its dependence on imported oil and higher energy costs have been fueling inflation, eroding household purchasing power and increasing production expenses for businesses.
“This sharp increase in inflation is a serious problem, both in the short term and in the longer term,” Balisacan said.
“But what we must ensure is that it does not become a persistent issue ... because high inflation will not help growth at all in the longer term,” he added.
Inflation breached the government’s 2.0- to 4.0-percent target in March and then surged to 7.2 percent in April. It surprisingly slowed to 6.8 percent last month but is still expected by the Bangko Sentral ng Pilipinas (BSP) to end the year above target at 6.4 percent.
The BSP last week raised key policy rates by another 25 basis points to temper inflation expectations. Central bank Governor Eli Remolona Jr. said more, and possibly larger, hikes could follow.
The rate hike, Balisacan said, was “based on broad economic considerations.”
“They (the BSP) are into inflation targeting, and that's their business. And they monitor expectations and make sure that inflation expectations remain on core with the inflation target,” he added.
“I’m pretty sure that they are seeing something that led them to make such a decision.”
