BMI cuts 2026 Philippines growth forecast to 4.2%

MANILA, Philippines — Research and analysis firm BMI has trimmed its 2026 economic growth forecast for the Philippines to 4.2 percent, following the slower growth outturn in the first quarter and headwinds from the ongoing Middle East conflict.

“The weak first quarter print, coupled with mounting spillover effects from the US-Iran conflict, has prompted us to revise down our 2026 growth forecast to 4.2 percent from 4.7 percent,” BMI said in a report.

The economy grew by 2.8 percent in the first quarter, its weakest performance in five years, due to lingering effects of the flood control controversy and higher prices and supply chain disruptions stemming from the Middle East conflict.

This was also slower than the previous quarter’s three percent growth and below the government’s five to six percent target for the year.

Department of Economy, Planning and Development Secretary Arsenio Balisacan said the government is set to lower the growth target for the year given the uncertainty from tensions in the Middle East.

“Looking ahead, the growth outlook is increasingly clouded by the US-Iran conflict, which has intensified inflationary pressure,” BMI said.

As the conflict between the US and Iran is likely to extend beyond BMI’s mid-May baseline, it said that oil prices are expected to stay higher for longer and continue to pose headwinds.

Given the higher than expected April inflation print and second round effects, BMI also raised its average inflation forecast for 2026 to 5.6 percent from 4.3 percent.

The new forecast is above the government’s two to four percent inflation target for the year.

“With prices spiking, this will likely keep private consumption subdued in the subsequent quarter,” BMI said.

Inflation accelerated to 7.2 percent in April, its highest level in over three years, due to faster increases in food and transport costs. This brought average inflation from January to April to 3.9 percent.

Given the latest growth and inflation figures, BMI said it now expects the Bangko Sentral ng Pilipinas to deliver a 50-basis points hike in June or in an earlier off-cycle meeting, which would bring the policy rate to five percent.

It said this would likely be the ceiling as weak growth should discourage further hikes.

“Even tighter policy will then worsen an already weak consumption and investment outlook,” BMI said.

In terms of the external sector, BMI said the export outlook is deteriorating as it cited the latest purchasing managers’ index report which said export orders declined in April at its steepest pace since mid-2020.

“However, as long as the AI (artificial intelligence) capex boom persists, there should be a floor to exports growth,” it said.

BMI also said that an expected recovery in public spending in the second half should support economic growth.

“While there are few signs of a pick-up in capital spending yet, we think that as the corruption scandal investigation winds down, this should give the government greater scope to resume public infrastructure projects especially given the weak growth backdrop,” it said.