LAST week, the Asian Development Bank (ADB) released a special update to its April 2026 Asian Development Outlook (ADO), which was prepared in March. The ADO is a regularly scheduled report that is published in April and September, and while it is not unprecedented for the ADB to publish a revised forecast shortly afterward, it does not happen often and is a sign of big trouble when it does appear. The last time there was a special update was in late April 2020, after the Covid-19 pandemic hit.
That should tell us something about the seriousness of the situation we are facing, not just here in the Philippines, but globally, although the ADB’s report naturally focuses on Asia. Opinions about whether President Ferdinand Marcos Jr.’s administration truly appreciates the circumstances and is responding appropriately are mixed, and probably tilted to the negative side.
In the April ADO, the ADB’s previous forecasts for 2026 were already negatively adjusted due to the war in the Middle East, meaning, gross domestic product (GDP) growth outlooks were lowered, and inflation forecasts were raised. At the time, the ADB was basing its forecasts on what it called the “early stabilization scenario,” which was an assumption that the conflict would gradually ease through the next couple of months, with oil prices and supply bottlenecks correspondingly improving, so that by early next year, the overall situation would be approaching prewar conditions. Under that scenario, GDP growth for developing Southeast Asia — the ADO and its supplements do not break things down by individual countries, but by regional or economically similar groups — was forecast to be 4.7 percent for this year and 4.8 percent for 2027. Inflation was forecast as 3.2 percent for 2026 and 2.8 percent for 2027.
However, developments since late March have caused the ADB’s economists to revise their assumptions, or as the latest update says, “Prolonged disruptions to energy transport and infrastructure in the Middle East point to more persistent supply constraints than anticipated in March 2026, potentially leading to structurally higher energy prices.” Now there are two scenarios I would take as an expression by the ADB economists’ group that “we don’t want to have to do this a third time.” The reference scenario, the one considered most probable, now forecasts growth for Southeast Asia at 4.2 percent this year and 4.1 percent in 2027, with inflation in 2026 and 2027 hitting 4.5 percent and 3.6 percent, respectively.
The less likely but not impossible scenario is the “severe downside scenario,” in which the petroleum supply chain remains strangled, and prices remain very high. Specifically, oil prices hitting close to $200 per barrel sometime in the coming weeks before starting to ease. Under this scenario, Southeast Asia’s growth falls to 3.6 percent this year and 2.7 percent in 2027, with inflation at 6.4 percent in 2026 and 5.1 percent in 2027.
Of course, it is fair to point out that these are regional numbers, and the country’s overly optimistic economic team will certainly continue to press the argument that it is possible that the Philippines could do better than these forecasts. It is possible, but not likely, because across all of Asia, the Philippines has experienced the second-highest increase in gasoline prices since the end of February — about 60 percent — and the third-highest increase in diesel prices, which is roughly 120 percent.
There were two points made by the supplemental forecast report that should give the government and the public pause. First, inflation for food and other goods historically logs sharp increases in oil prices and, particularly, fertilizer prices. Fertilizer is usually treated as a separate commodity from petroleum and petroleum products, but it really should not be, as most of it is derived from oil and gas refining processes. Thus, countries like the Philippines can expect a second shock, even if it seems oil prices are moderating. Much is made of the fact that the Philippines is not as exposed to what is going on in the Middle East in terms of fertilizer supply because most of it is sourced from other Asian countries, and that will help a bit. But the longer the crisis drags on, the less that advantage will mean because demand for that same supply will become more competitive.
The second point that stood out is that the supplemental report essentially says the Philippines, and other countries with similar policy responses to the crisis, are on the wrong track and setting themselves up for more difficult-to-resolve fiscal problems later. Price controls, fuel subsidies, and excise tax cuts “offer short-term relief, but are fiscally costly and distort incentives,” the report said. As an alternative, “[t]argeted support to vulnerable households would preserve price signals and safeguard fiscal space.”
To be fair, there are some experts in the Philippines who have been saying that for weeks; for example, it seems to be a common conclusion among economists at the Philippine Institute for Development Studies, or PIDS. Cutting fuel excise taxes provides only limited relief, which shrinks as fuel prices go up. As things have turned out, the government has ensured that suspending the excise tax will have no relieving effect whatsoever, having delayed doing it for an unhelpful amount of time and then only partially implementing it. Fuel subsidies are not so bad, especially the way the government here is handling it, providing the subsidy directly to consumers (i.e., public transport operators) rather than suppliers, but the government does not have the resources to spend enough on subsidies to make them meaningful. Price controls on the supply of anything that is not within the government’s control are almost never a good idea. Unless the government has a lower-cost reserve of the commodity in question — whether it’s oil, refined fuel products, rice, fertilizers, or whatever — that it can use to intervene in the market, the distortion from price controls usually just leads to higher prices for a longer period.
ben.kritz@manilatimes.net
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