THE International Monetary Fund (IMF) has lowered its Philippine growth forecasts, citing the impact from the continued war in the Middle East, tighter global financial conditions and weaker investments.
“The Philippine economy is facing a challenging conjuncture as commodity-related inflationary pressures compound a growth deceleration,” IMF Mission Chief Andrea Pescatori told reporters on Friday following the conclusion of an Article IV consultation with local officials.
The IMF trimmed its 2926 growth outlook to 3.4 percent from 3.9 percent, below the government’s downwardly revised 3.5- to 4.5-percent target. That for next year was also lowered to 5.1 percent from 5.5 percent, within the 2027-2030 goal of 5.0-6.0 percent.
The economy grew by just 2.3 percent in the second quarter, slowing from 2.8 percent in January-June, following the oil shock from the Middle East conflict and the lingering impact of last year’s massive flood control project scandal.
“Risks to growth are tilted to the downside,” Pescatori said.
“The main external risks stem from a prolonged Middle East conflict with higher energy prices and commodity prices, tighter global monetary conditions, and also weaker investments,” he added.
A weaker recovery in public investment and confidence, along with more frequent climate-related events, will also likely weigh on growth.
“Faster implementation of structural and governance reforms would foster stronger investment,” Pescatori said.
The lower IMF growth forecasts followed a similar cut announced by the Asian Development Bank, which on Wednesday said that the Philippines was likely to grow by 3.3 percent this year instead of 3.8 percent.
The Manila-based lender also cited the war in the Middle East, climate-related shocks and delays in public investment. It expects a rebound to 5.1 percent in 2027, although this is also lower than the previous outlook of 5.3 percent.
The IMF, meanwhile, slightly lowered its 2026 Philippine inflation forecast to 5.6 percent from 5.7 percent but raised that for next year to 4.1 percent from 3.3 percent.
Both are well above the 2.0- to 4.0-percent target of the Bangko Sentral ng Pilipinas.
Pescatori said that rice prices concerned them most with a baseline projection of a 20- to 25-percent increase.
“Since rice accounts for around 12 percent of the consumer basket, this would obviously keep pushing up headline inflation numbers,” he said.
Pescatori also said that a “sharp pass-through” from oil price increases could be felt in the fourth quarter, potentially prompting another policy rate hike this year.
“So, I think in that sense, we do expect that there will be an extra hike by the BSP,” Pescatori said.
If the shock in the Middle East is more persistent, and you see second-round effects and core inflation also picking up, that’s when the BSP has to follow... which would imply additional hike to stabilize and anchor inflation expectations.
The central bank’s policymaking Monetary Board has so far raised key interest rates three times this year, with the benchmark rate now at 5.0 percent.