THE Philippine economy is expected to see a sharp slowdown in 2026 even as Bank of America (BofA) raised its growth outlook for Southeast Asia, highlighting a widening gap between the Philippines and economies benefiting from the artificial intelligence (AI)-driven electronics boom.
BofA Global Research kept its Philippine gross domestic product (GDP) growth forecast at 2.5 percent for 2026, unchanged from its June estimate, while raising its forecast for overall growth for the Association of Southeast Asian Nations (Asean) to about 5 percent from 4.7 percent at the end of the second quarter.
“The Philippines is expected to see a sharp slowdown relative to 2025,” BofA said in its latest Asean economic outlook for the association released Friday.
BofA said modest gains in consumption and signs that investment spending may be bottoming out could support Philippine growth in the second half, although the improvement would come “from a low base.”
The 2.5-percent Philippine forecast is among the weakest in the region, together with Thailand that was also forecast to grow by 2.5 percent. BofA expects Malaysia to grow 5.2 percent, Singapore 5.1 percent, Vietnam 8.2 percent, and Indonesia 5.3 percent in 2026.
BofA attributed the widening divergence partly to differences in exposure to the global AI and electronics upcycle.
“Indonesia and the Philippines continue to lag,” the bank said, identifying the two economies as more domestically oriented and less exposed to the AI-related export cycle.
Malaysia and Singapore are the main beneficiaries of the AI upcycle, while Thailand and Vietnam are seeing spillovers from stronger technology-related demand, BofA said.
Asean electronics exports averaged around 28 percent year-on-year growth from March to July, up from 13 percent in February, as resilient technology demand supported the region’s external sector.
For the Philippines, BofA also flagged elevated inflation and vulnerability to external shocks as risks to the outlook.
It also kept its 2026 Philippine inflation forecast at 6.7 percent and expects inflation to peak in the fourth quarter, driven by higher oil and rice prices as well as a 12-percent minimum wage increase.
The Philippines is also particularly vulnerable to El Niño-related inflation risks because of its elevated inflation, reliance on food imports, and high food weight in the consumer price index, BofA said.
The bank cited a 69-percent probability of a record-strength El Niño during October to December 2026.
A weaker peso could further amplify imported inflation, while the country’s wide fiscal deficit limits room for policy support, BofA said.
On monetary policy, BofA expects the Bangko Sentral ng Pilipinas (BSP) to keep its policy rate at 5 percent through end-2026 and end-2027, as slower growth and an expected peak in inflation could restrain the need for more aggressive tightening.
The BSP has raised its policy rate by 75 basis points during the current tightening cycle, according to the report.
