SLOWER-THAN-EXPECTED first-quarter growth has underlined expectations of a below-target outcome for 2026, with Fitch unit BMI revising its forecast to 4.2 percent from 4.7 percent and Bank of America (BofA) maintaining its markedly lower projection of 2.0 percent.
Gross domestic product (GDP) grew by just 2.8 percent in January-March, well below the government’s 5.0- to 6.0-percent goal for the year and slowing from 3.0 percent three months earlier.
It was also lower than the 3.3-percent median in a Manila Times poll of economists and marked the slowest expansion since the Covid-19 pandemic.
The government has blamed the result on the lingering effects of last year’s massive flood control project scandal, budget delays that had slowed the rollout of programs and projects, and fallout from the war in the Middle East.
“The weak Q1 print, coupled with mounting spill-over effects from the US-Iran conflict, has prompted us to revise down our 2026 growth forecast..., “ BMI said on Thursday.
“Risks are tilted to the downside,” it added.
“It is increasingly likely that the US-Iran war will extend beyond our mid-May baseline, keeping oil prices higher for longer and posing further growth headwinds.”
BofA, which also has a below-target forecast of 3.0 percent for 2027, noted that the first-quarter was close to its 2.6-percent estimate for the period and “on track with our baseline 2026E (estimate) GDP growth forecast of two percent.”
It expects growth to remain unchanged in the second quarter, drop to a low of 13 percent in July-September and then recover slightly to 1.8 percent in the last three months of 2026.
BofA said that its baseline estimates for this year and the next were premised, among others, on a second-half resolution to the Middle East war that would bring the average Brent price to $92.5 per barrel, higher than the year-to-date $68/barrel.
With domestic inflation having hit 7.2 percent last month, it said the rate could average 7.3 percent in 2026 and hit 5.3 percent next year — well over the Bangko Sentral ng Pilipinas’ (BSP) 2.0- to 4.0 percent target.
BoFa previously projected 5.0-percent inflation for this year and the next.
Consumer price growth, which averaged 2.8 percent in the first three months of 2026, is expected to hit 8.1 percent in the second quarter, 9.0 percent in the third and 9.3 percent in October-December.
The rate is expected to ease to 8.3 percent in January-March 2027, markedly slow to 4.7 percent in the second quarter, and stabilize at 4.0 percent in the last six months of the year.
The BSP, which raised its benchmark rate by 25 basis points (bps) in April as the inflation outlook deteriorated, is now expected by BofA to tighten by 25 bps each during the next two policy meetings in June and August. This will bring the key rate to 5.0 percent.
BMI, meanwhile, said the central bank could deliver an aggressive 50 bps increase next month or earlier in an off-cycle meeting, which “will then worsen an already weak consumption and investment outlook.”
“There is some consolation — 5.00 percent will probably be the [policy rate] ceiling as weak growth should discourage further hikes,” it added.
BMI raised its inflation outlook for 2026 to 5.6 percent from 4.3 percent, which it said would likely weigh on private consumption over the coming quarters.
A potential “silver lining” for the economy, however, could come in the second half from a recovery in public capital expenditures.
“While there are few signs of a pickup in capital spending yet, we think that as the corruption scandal investigation winds down, this should give the government greater scope to resume public infrastructure projects especially given the weak growth backdrop,” BMI said.
