Moody’s unit trims Philippines growth forecast to 3%

MANILA, Philippines —  Moody’s Analytics has cut its 2026 growth forecast for the Philippines to three percent from four percent in June, citing weaker domestic demand following a disappointing second-quarter performance and elevated inflation that continues to erode household purchasing power.

The latest projection falls below the government’s 3.5 to 4.5 percent gross domestic product (GDP) growth target for the year.

“The lower forecast primarily incorporates the latest second-quarter GDP data, which point to substantially weaker domestic demand than we had anticipated,” Sarah Tan, economist at Moody’s Analytics, told The STAR.

The Philippine economy grew by 2.3 percent in the second quarter, slower than the 2.8-percent expansion in the first quarter. This brought average GDP growth in the first half to 2.6 percent.

“We expect growth to remain subdued in the second half of the year,” Tan said.

She said the weakness in consumption and private investment seen in the second quarter suggests that domestic demand will remain a constraint through the rest of 2026.

“Elevated inflation is also weighing on household purchasing power and will likely limit the pace of the recovery,” she said.

Moody’s Analytics expects economic growth to improve to 4.6 percent in 2027 and 5.1 percent in 2028.

Tan said a favorable base effect following this year’s weak growth should support the recovery in 2027. Inflation is also expected to ease, providing relief to households and allowing domestic demand to recover gradually.

However, she warned that a more persistent inflation shock could further weaken the outlook, particularly if El Niño intensifies food price pressures.

Continued weakness in private investment is another major downside risk.

Moody’s Analytics raised its 2026 inflation forecast to 5.2 percent from the 3.5 percent projected in April. It expects inflation to ease to 3.5 percent in 2027 and 3.2 percent in 2028.

“The upward revision to our inflation forecast since April largely reflects the latest inflation data, which have been considerably higher than previously expected,” Tan said.

She said the Philippines has been particularly exposed to the energy price shock and its spillover into food and other consumer goods and services.

Headline inflation eased to 6.2 percent in July from 6.4 percent in June but remained well above the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target range. Inflation averaged five percent from January to July.

Against this backdrop, Tan said the BSP faces a close call at its policy meeting today.

Weak second-quarter growth could prompt the Monetary Board to keep the target reverse repurchase rate unchanged at 4.75 percent.

However, Moody’s Analytics believes the balance of risks slightly favors another rate hike.

“Monthly inflation has exceeded six percent year-on-year in the last four prints, firmly above the bank’s two to four percent target range,” Tan said.

The BSP raised the policy rate by 25 basis points each in April and June, bringing its cumulative tightening this year to 50 basis points.