THE impact of the war in the Middle East is expected to slow Philippine economic growth and prompt the Bangko Sentral ng Pilipinas (BSP) to raise interest rates, Maybank Research said.
In a report assessing the fallout of the conflict on Asean's biggest economies, Maybank downgraded its 2026 Philippine growth forecast to 4.5 percent from 4.9 percent and also lowered the outlook for 2027 to 4.9 percent from 5.2 percent.
Both revisions fall below the government’s 5.0- to 6.0-percent target for this year and the 5.5-6.5 percent for 2027, which were adopted last December to take into account the impact of a massive flood control project scandal.
The corruption mess had led to 2025 growth of just 4.4 percent, missing the 5.5- to 6.5-percent goal.
“We lower our GDP growth forecasts for the Asean economies in 2026, resting on a base case that oil prices retreat to lower levels and some form of ceasefire is declared by 2Q (second quarter),” Maybank said in the report released late on Friday.
Collectively, growth of the six most developed Association of Southeast Asian Nations economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — is expected to hit 4.5 percent this year and 4.7 percent in 2027, slower than the previous forecast of 4.8 percent.
Oil prices are expected to average about $75 per barrel this year, higher than the pre-conflict assumption of $65, and $70 per barrel in 2027 (up from $66) if the conflict ends soon and supplies are gradually restored.
“There may be further downside risks in the event of a protracted war where energy and other commodity supplies continue to be disrupted,” Maybank warned, and noted that betting markets were pricing in ceasefire probabilities of 54 percent chance by end-June and 71 percent by the end of the year.
The Philippines, and to a slightly lesser extent Vietnam, were said to be particularly vulnerable as it sources 95 percent of its crude oil imports from Persian Gulf countries. The country is also dependent on gas from the region (21.4 percent), and buys 10 percent of its nitrogen fertilizer needs from the Middle East.
Tourism, trade hit
Tourism will also take a hit, Maybank said, as Asean relies significantly on travelers from Europe who pass through hubs in the Gulf. A little over 11 percent of the Philippines’ foreign visitors come from Europe while 1.5 percent come from the Middle East or West Asia.
While the country does not have much of an export exposure to Persian Gulf countries, shipments to Europe could take a hit due to the need to change shipping routes and the resulting higher freight and insurance costs.
“A steep rise in energy prices will worsen the current account balances and weaken the currencies of Asean’s net energy importers,” Maybank also said, with the Philippines’ current account deficit likely to be further exacerbated.
The country’s oil and gas trade balance, it noted, hit a $13.8-billion deficit last year.
With Asean economies already facing upside inflation risks before the war began, Maybank also raised its inflation forecast for the Philippines, citing second-round effects from higher fuel, electricity and food prices.
It now expects inflation to average 3.3 percent in 2026, up from its previous estimate of 2.8 percent, before easing slightly to 3.1 percent in 2027.
“Our house estimates that a sustained 10-percent rise in crude oil prices will have the highest inflationary impact on [the] Philippines (+0.45 percentage point)...,” it said.
Q2 rate hike possible
With this, Maybank said BSP could raise key interest rates and end a run of rate cuts that began in August 2024.
“The energy price shock has short-circuited Asean’s monetary easing cycle,” it said.
“We now expect the Banko Sentral Philippines to hike its policy rate by +25bps, possibly in 2Q, bringing the policy rate to 4.5 percent by end-2026,” instead of cutting one final time this year.
Maybank quoted Finance Secretary Frederick Go as having said that tightening could be considered during the next Monetary Board meeting in April.
BSP Governor Eli Remolona Jr. has said that the central bank's policymaking body could raise policy rates if oil prices climb to $100 per barrel and the dollar strengthens sharply.
The BSP’s benchmark rate currently stands at 4.25 percent following a 25-basis-point cut last month. Its next rate-setting meeting will be on April 23.
