Philippine growth to lag Asia-Pacific peers — S&P

By Katherine K. Chan, Reporter

THE PHILIPPINES risks becoming one of Asia-Pacific’s growth laggards this year, with economic expansion seen slowing to 4.1% amid oil shocks from the Middle East conflict and the lingering effects of last year’s corruption controversy, S&P Global said.

In its latest economic outlook for Asia-Pacific, the debt watcher cut its gross domestic product (GDP) growth forecast for the Philippines to 4.1% for this year from 5.8% previously.

This was the largest downward revision S&P made across the region. It had also trimmed its growth projection for Japan to 0.6% from 0.8%, as well as Australia and New Zealand to 1.9% from 2%.

If S&P’s projection for the Philippines holds true, the country will be the sixth-slowest growing economy in the Asia-Pacific this year.

S&P expects Japan’s growth to be the region’s weakest this year at 0.6%, followed by Australia and New Zealand at 1.9%, Thailand at 2.3%, South Korea at 2.9%, and Singapore at 3.9%.

S&P Global Asia-Pacific Chief Economist Louis Kuijs and Senior Economist Vishrut Rana noted that the Philippines bucked the region’s resilience at the start of the year after growth unexpectedly slowed in the first quarter.

“Asia-Pacific economic growth largely held up in early 2026. In the first quarter, GDP growth met or exceeded expectations in most economies, with generally solid contributions from both exports and domestic demand,” Mr. Kujis and Mr. Rana said in the June 23 report.

“However, 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,” they added.

In the January-to-March period, the economy grew by 2.8%, its weakest growth since the COVID-19 pandemic, due to spiraling oil prices and the fallout from the flood control corruption scandal. It marked the third straight quarter that the country’s GDP growth slowed.

Meanwhile, S&P also lowered its growth projection for next year to 5.8% from 6.2% previously. It kept its 2028 forecast unchanged at 6.2%.

For 2029, it projects Philippine GDP to grow by 6.1%.

The S&P economists noted that countries in the Asia-Pacific, including the Philippines, are heavily reliant on oil imports from the Middle East, which made them vulnerable to disruptions in key energy facilities and the Strait of Hormuz. 

In the Philippines, fuel prices hit over P100 per liter from the P50- to P60-per-liter range before the war erupted in late February.

As of the third week of June, pump price adjustments this year stood at a total net increase of P47.02 per liter for gasoline, P39.71 per liter for diesel, and P37.30 per liter for kerosene.

Mr. Kujis and Mr. Rana said elevated energy prices typically feed into the costs of other commodities, dampening consumers’ purchasing power and domestic demand.

“(H)igher global energy prices filter through to consumers via increases in production costs of other products and services,” they said. “The increase in energy prices generally erodes purchasing power and depresses domestic demand. More expensive energy also weighs on growth via weaker demand elsewhere and tighter financial conditions.”

High oil prices weighed heavily on Filipino households’ budgets as it drove up costs of utilities, transport, and food.

Inflation remained above the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% target in the last three months, although it eased to 6.8% in May from 7.2% in April.

S&P expects inflation to accelerate to 4.8% this year from 1.7% in 2025, faster than its previous forecast of 3.4%. As of May, the country’s headline inflation stood at 4.5%.

For 2027, S&P sees inflation easing to 3.3%, although a tad faster than its earlier projection of 3.2%. It expects inflation to further ease to 3% in 2028 and 2.9% in 2029.

“In South Korea, Thailand and, especially, the Philippines core inflation has already risen significantly since February,” Mr. Kujis and Mr. Rana noted. “The increase in the Philippines was the key reason for its central bank to lift its policy rate twice.”

Core inflation breached the target for the first time in over two years after quickening to 4.1% last month.

Last week, the BSP delivered its second straight 25-basis-point (bp) increase, bringing the benchmark policy rate to 4.75% as it sought to temper broadening second-round price effects.

BSP Governor Eli M. Remolona, Jr. has left the door open for more measured hikes, with another quarter-point hike on the table at their next meeting, amid an elevated inflation outlook and risks from the lagged effects of high oil and fertilizer prices.

For Mr. Kujis and Mr. Rana, however, the BSP might only have room for one more 25-bp hike to end its tightening cycle once the policy rate hits 5% this year.

The Monetary Board still has three regular policy reviews left this year on Aug. 27, Oct. 22 and Dec. 17.

Meanwhile, S&P expects the central bank to reverse course starting next year to lower key borrowing costs to 4.5%, before bringing it further down to 4% by 2028 until 2029.