S&P Global Ratings has sharply lowered its 2026 growth forecast for the Philippines, citing the impact of the energy shock caused by the Middle East war and reduced government infrastructure spending in the wake of last year’s massive flood control project scandal.
The debt watcher now expects the country to grow by just 4.1 percent this year, down from 5.8 percent previously and slowing from 2025’s 4.4 percent. The new outlook falls within the government’s downwardly revised 3.5- to 4.5-percent target.
The Philippines was among four Asia-Pacific economies — the others being Australia, Japan and New Zealand — that were given lower growth forecasts, again primarily due to the energy shock.
The Philippines saw the biggest cut — 1.7 percentage points compared to 0.1-0.2 for the others — and the revised 2026 outlook falls below the 4.4-percent expansion seen for the region.
“Growth significantly lagged expectations in the Philippines, where the energy shock combines with a sharp reduction in public infrastructure spending related to misutilization of funds,” S&P said.
Regional growth has largely held up despite the Middle East war, it noted, but economies that are exposed to the artificial intelligence boom are expected to particularly benefit as technology exports outweigh higher energy costs.
Taiwan, in particular, was forecast to post 8.2 percent growth this year, 1.9 percentage points up from the previous outlook. Hong Kong also saw a 2.0-percentage-point increase to 4.5 percent and South Korea is now seen growing by 2.9 percent instead of 1.9 percent.
“[M]ost Southeast Asian economies are seeing data center investment that supports construction and capital spending,” S&P said. “That is especially the case in Malaysia, Thailand, and Vietnam.”
Vietnam is expected to lead Southeast Asian growth with its 2026 forecast unchanged at 6.7 percent.
The Philippines, however, has not enjoyed the same level of benefits from the AI-led export boom because of its relatively limited exposure to technology manufacturing.
The country is among the countries in the region that experienced some of the largest increases in gasoline prices, with fuel costs rising by around 25 percent since the onset of the energy shock.
Although governments across Asia implemented measures to cushion consumers from the full impact of higher oil prices, S&P said rising energy costs were continuing to filter through economies by increasing production expenses and reducing household purchasing power.
The debt watcher also lowered its 2027 growth forecast for the Philippines to 5.8 percent from 6.2 percent but kept that for 6.2 percent. The outlook for 2029 is a slight slowdown to 6.1 percent.
S&P also expects inflationary pressures to remain elevated as higher fuel and transport costs continue to ripple through the economy.
It forecast Philippine inflation to average 4.8 percent in 2026, above the 2.0- to 5.0-percent target, and then slow to 3.3 percent next year. It expects inflation to further ease to 3.0 and 2.9 percent in 2028 and 2029, respectively.
S&P noted that core inflation in the country had risen significantly since February, prompting the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy.
“The increase in the Philippines was the key reason for its central bank to lift its policy rate twice,” it said, adding that further increases remain possible as higher energy costs work their way through the broader economy.
Consumer price growth surged to 7.2 percent in April before surprisingly slowing to 6.8 percent last month. The BSP expects the rate to average 6.4 percent this year.
S&P expects monetary policy to stay relatively tight, with the BSP’s benchmark rate projected to hit 5.0 percent by yearend before easing to 5.4 percent in 2027.
It sees the rate hitting 4.0 percent in 2028 and staying there in 2029.
The peso, meanwhile, was forecast to hit P60.50 to the dollar by the end of the year and strengthen to P59.50, P59.00 and P58.50, respectively in 2027, 2028 and 2029.
Unemployment is expected to worsen slightly to 4.5 percent this year, from 4.2 percent in 2025, but improve to 4.2 percent, 4.1 percent and 4.0 percent in the next three years.
S&P qualified that its latest forecasts “carry a significant amount of uncertainty” as it “believes there is a high degree of unpredictability around the duration and scale of the Middle East war and its potential effect on commodity prices, supply chains, economies and credit conditions.”
“As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly,” it added.
