THE International Monetary Fund (IMF) and Moody’s Ratings have lowered their Philippine growth forecasts, joining other institutions that have downgraded their outlooks due to the likely impact from the war in the Middle East.
“Growth in the Philippines is revised downward by 1.5 percentage points for 2026, relative to January, with the war shock compounding the negative base effects from a weaker-than-expected 2025 outturn related to a sharp decline in public investment and confidence,” the IMF said in the April edition of its World Economic Outlook.
The country is now expected to post growth of just 4.1 percent this year, lower than the 5.6 percent projected in January and a slowdown from last year’s 4.4-percent expansion. It also falls below the government’s 5.0- to 6.0-percent target for 2026.
The outlook for 2027 was kept at 5.8 percent, within the official goal of 5.5-6.5 percent.
Moody’s, meanwhile, revised its Philippine growth forecasts to 4.9 percent for 2026 and 5.3 percent for 2027 from 5.5 percent and 5.6 percent, respectively.
“The conflict in the Middle East has increased downside risks to the Philippines’ economic outlook by raising global energy prices and external cost pressures,” the debt watcher said.
The downgrades add to those announced last week by the World Bank and the Asian Development Bank (ADB), which also tagged the Philippines’ dependence on oil and fertilizer from the Middle East.
The World Bank slashed its 2026 forecast to 3.7 percent, and an official noted that the “Philippines is exposed to the conflict not only through energy and fertilizer imports but also through remittances.”
The based ADB said it now expected Philippine economic growth to hit just 4.4 percent this year, unchanged from 2025, instead of the 5.5-percent rebound seen last December.
An IMF spokesman told The Manila Times that risks to growth were tilted to the “downside while inflation risks are tilted to the upside, reflecting the risk of a prolonged war in the Middle East, further escalation of geopolitical tensions and higher trade policy uncertainty.”
“Domestic risks stem from the impact of corruption allegations related to flood control projects, extreme climate events and weaker-than-expected reform momentum.”
Last year’s 4.4-percent growth result, which was below the 5.5- to 6.5-percent target, has been blamed on a massive flood control project scandal that led to markedly lower government spending and also weighed on consumer and investor sentiment.
As for inflation, the IMF expects it to increase to 4.3 percent this year, breaching the 2.0- to 4.0-percend target and reflecting “higher global energy and other commodity prices,” before easing to 3.2 percent in 2027.
The IMF spokesman said the “BSP (Bangko Sentral ng Pilipinas) should be ready to tighten monetary policy if risks of de-anchoring inflation expectations arise.”
Moody’s also expects inflation to rise but not exceed target. Consumer price growth was forecast to average 3.7 percent this, up from 3.0 percent previously, before easing slightly to 3.5 percent next year — also higher than previous forecast of 3.2 percent.
“Higher energy and broader import costs are expected to erode real incomes amid high pass-through, dampen consumption and weigh on industrial activity, reinforcing a firmer inflation trajectory,” it said.
Moody’s noted that domestic demand — historically a key driver of Philippine growth — was likely to remain subdued. Household consumption may weaken as rising prices cut into real incomes, while slower remittance growth from overseas Filipinos could further constrain spending.
Investment activity is also expected to recover only gradually and begin only in the second half of 2026 “as the government continues to take concrete measures to address the temporary slowdown.”
“Meanwhile, higher energy import bills amid rising prices and peso depreciation, together with slower remittance growth, are expected to widen the current account deficit,” it said.
Above-target inflation, Moody’s continued, will increase “the risk of policy tightening, even as softening growth and a negative output gap support a broadly accommodative stance in the near term,” it added.
Despite the near-term slowdown, Moody’s maintained that the Philippines continued to exhibit strong medium-term growth potential, supported by favorable demographics, a large domestic market and a services-driven economy.
Structural factors such as a young and expanding workforce, along with ongoing infrastructure development, are expected to underpin economic expansion over the longer horizon.
While the Philippines’ investment-grade rating remains intact at Baa2 stable, Moody’s latest projections signaled a more challenging near-term environment, with growth expected to moderate before gradually regaining momentum in the years ahead.
