THE Philippine economy could recover in the second half of 2026 even as the Bangko Sentral ng Pilipinas (BSP) is expected to continue raising interest rates to combat inflation, according to Nomura.
In its latest Global Economic Outlook report, Nomura said economic activity is likely to remain weak in the first half of the year amid elevated inflation, delayed public projects and subdued private sector sentiment, but growth could regain momentum later in the year.
“We expect a pickup in GDP (gross domestic product) growth in H2 2026 (second half 2026), in part due to low base effects but also the implementation of catch-up spending plans by the public sector,” Nomura said.
Nomura trimmed its 2026 GDP growth forecast to 4.6 percent from the previous 5.0 percent following the weaker-than-expected first-quarter economic performance and the continued impact of rising oil prices linked to the conflict involving Iran and the United States.
Philippine growth slowed to 2.8 percent in the first quarter from 3.0 percent in the fourth quarter of 2025, weighed down by lingering effects of the flood control corruption scandal and continued fiscal tightening.
The bank added that limited pre-procurement activity continued to delay infrastructure and government projects, while weak business sentiment dampened private investment spending.
At the same time, higher global oil prices are expected to further weigh on household consumption as rising fuel costs erode purchasing power.
Nomura said the Philippines remains among the most vulnerable economies in the region to oil price shocks due to its dependence on imported fuel.
“The impact of the Iran conflict on energy prices is only adding to these headwinds and causing a surge in inflation, weakening household purchasing power,” it said.
The bank raised its 2026 inflation forecast to 6.1 percent from 4.9 percent previously, significantly above the BSP’s 2- to 4-percent target range, after adjusting its Brent crude oil assumption to $98.4 per barrel from the earlier $86 per barrel estimate.
Headline inflation accelerated sharply to 7.2 percent in April from 4.1 percent in March amid soaring energy prices, while core inflation rose to 3.9 percent from 3.2 percent, signaling that second-round effects were already emerging.
“With our latest CPI (consumer price index) forecasts, we now expect BSP to hike by an additional 75 basis points this year to 5.25 percent, starting in June,” Nomura said.
Despite the expected rate increases, Nomura said the BSP would likely adopt a measured tightening approach given the fragile growth environment.
“We expect a very short hiking cycle, which is likely to be reversed next year,” it said, adding that it expects the central bank to cut rates by 75 basis points by the second half of 2027.
Nomura also raised its forecast for the country’s current account deficit to 4.8 percent of GDP from 4.5 percent previously as higher oil import costs widened the trade gap.
Still, the bank maintained its fiscal deficit projection of 5.1 percent of GDP for 2026, narrower than the estimated 5.6 percent in 2025, noting that the government appears unlikely to implement broad fuel subsidies despite rising energy prices.
