WEAK consumer spending and investment are expected to continue weighing on the Philippine economy, with Bank of America (BofA) forecasting 2026 growth of below 3.0 percent.
In its latest Asean Watch report, BofA said the economy is going through the “slow lane,” with expansion “stuck below potential pace.”
“We see GDP (gross domestic product) growth staying below three percent in 2026 as weak consumption and investment continue to weigh on domestic demand,” it said.
The government earlier this year trimmed its 2026 growth target to 3.5-4.5 percent following the outbreak of the war in the Middle East and the lingering impact of last year’s massive flood control project scandal.
Both factors have been blamed for growth having slowed to 2.3 percent in the second quarter.
BofA said that while the government was ramping up its spending, following last year’s corruption mess, “growth expectations appear a bit optimistic.”
“If the government’s plans to increase spending keeps gaining momentum, the outlook for 2027 could be better,” it added.
BofA expects growth to edge up to 3.5 percent in 2027 but said this would depend on oil prices easing and global interest rates remaining stable.
The forecast is also below the government’s 5.0- to 6.0-percent target for next year.
Investment growth, BofA noted, was negative for four consecutive quarters through the second quarter of 2026.
While investments could perform marginally better in the second half, the bank flagged weaknesses in both the private and public sectors.
“Both the private sector and the public sector appear relatively weak and may not provide much support to growth,” BofA said.
The bank also highlighted renewed inflation risks as a major threat, noting that oil prices had risen again since a previous assessment in August, reducing the likelihood that inflation had already reached its peak.
It expects the Bangko Sentral ng Pilipinas (BSP) to potentially raise its inflation forecasts for both 2026 and 2027.
The BSP’s current projections are 6.1 percent and 5.4 percent, respectively, for this year and the next, higher than the 2.0- to 4.0-percent target.
Higher oil prices could push both peak and average inflation rates higher, but if energy prices drop soon, “then the need to raise the forecasts may not be material,” BofA said.
The combination of weak growth and rising inflation could create a difficult environment for monetary policy, it said.
“Still, given BSP’s inflation mandate and extended period of inflation remaining above its target, the probability of more rate hikes in the future has risen, in our view.”
The BSP policymaking Monetary Board has raised key interest rates thrice this year in bid to temper inflation, with the benchmark rate now at 5.0 percent.
“In case the BSP ends up hiking aggressively, and eventually as inflation falls aggressively, the reversal of the cycle sometime in 2027 or 2028 could be equally sharp as well, but contingent on inflation coming off sharply as [the] BSP projects,” BofA said.
