THE Asean+3 Macroeconomic Research Office (AMRO) on Thursday slashed its Philippine economic growth forecast for 2026 to 3.4 percent from 4.1 percent, citing weaker private consumption and subdued investment.
A rebound to 4.8 percent was projected for 2027, but this is also lower than the Singapore-based international organization’s previous forecast of 5.5 percent.
The latest revisions fall below the government’s downwardly revised 3.5- to 4.5-percent target for 2026 and the 5.0-6.0 percent for 2027 to 2030.
“With growth expected to weaken and inflation to remain elevated this year, a timely and balanced response is needed to prevent the adverse effects of external and domestic headwinds from becoming persistent,” AMRO said in a statement issued following the end of its annual consultation visit to the Philippines.
“Sustaining resilience will require swift action to revive public investment and contain second-round inflation effects, while helping the economy adapt to structural challenges,” it added.
Jinho Choi, AMRO lead economist and mission chief, noted the economy had decelerated for four consecutive quarters through April-June this year, reflecting both external supply shocks and domestic demand weakness.
“The Philippines is facing two different shocks,” Choi said during a briefing.
He said weaker private consumption amid higher inflation and a sharp contraction in public investment would weigh on gross domestic product (GDP) growth this year.
However, a gradual recovery in public consumption and strong exports in the second half would provide some support to economic activity.
AMRO continues to expect inflation to breach the 2.0- to 4.0-percent target, but the revised outlook for 2026 was slightly lowered to 5.4 percent from 5.7 percent.
It now expects consumer price growth to return to target next year with the updated projection set at 3.8 percent from 4.1 percent previously.
Choi said the lower inflation outlook reflected recent developments in headline and core inflation as well as a milder outlook for global oil prices.
The Philippines’ headline inflation eased to 6.2 percent in July from 6.4 percent in June while core inflation slowed to 4.2 percent from 4.4 percent.
Choi said uncertainty surrounding the Middle East war remained an upside risk to inflation, while possible minimum wage increases could also add to price pressures.
AMRO also expects the country’s current account deficit to widen to just below four percent of gross domestic product this year, mainly due to higher energy import bills.
The peso has also weakened amid heightened external pressures, including broad dollar strength, terms-of-trade shocks, higher oil prices and weaker investment confidence as growth slows.
Despite these pressures, AMRO said the Bangko Sentral ng Pilipinas’ external buffers remained adequate while the banking sector was still sound and resilient.
The fiscal deficit is expected to narrow to 5.3 percent of GDP this year, reflecting a sharp contraction in capital spending.
AMRO said fiscal policy should remain responsive to the cyclical downturn by restoring well-governed, technically sound and implementation-ready infrastructure projects while maintaining medium-term fiscal consolidation.
On monetary policy, AMRO recommended that the BSP remain data-dependent in making policy decisions.
“Further rate hikes would be warranted if core inflation remains elevated and persistent, or inflation expectations show signs of becoming de-anchored,” AMRO chief economist Dong He said.
For the medium term, AMRO called for structural reforms to strengthen the country’s growth potential, including moving the semiconductor industry toward higher-value activities such as advanced and wafer-level packaging.
It also recommended shifting the information technology and business process management industry toward more knowledge-intensive and artificial intelligence-complementary services.
He said energy security should likewise be strengthened through a more diversified energy mix and reliable power supply, alongside climate resilience initiatives guided by measurable outcomes.
