IMF, ADB lower Philippines growth outlook

MANILA, Philippines —   Multilateral lenders International Monetary Fund (IMF) and the Asian Development Bank (ADB) slashed their growth forecasts for the Philippines for the next two years, citing the weaker-than-expected first-quarter performance and the larger impact of the Middle East conflict on domestic prices and economic activity.

In its July World Economic Outlook (WEO) Update, the IMF now expects the Philippine economy to grow by 3.9 percent in 2026 and 5.5 percent in 2027, lower than its April forecasts of 4.1 percent and 5.8 percent, respectively.

“Growth has been revised down relative to the April WEO… This reflects a weaker than expected outturn in the first quarter of 2026 alongside a larger-than-expected effect of the war in the Middle East on prices and activity in the Philippines,” an IMF spokesperson said.

The Philippine economy expanded by only 2.8 percent in the first quarter, its slowest pace in five years, as elevated fuel prices and slower public spending weighed on activity.

The downgrade also reflects the Philippines’ vulnerability as a net energy importer at a time when the global economy is being reshaped by opposing forces: the negative supply shock from the Middle East war and the positive demand boost from the global technology cycle driven by artificial intelligence.

In the WEO Update, the IMF said global growth is projected to slow to three percent in 2026 from 3.5 percent in 2025, before recovering to 3.4 percent in 2027.

The multilateral lender said the impact varies widely across countries depending on their exposure to the war and their position in the technology value chain. Energy importers with limited participation in the technology-led upturn are expected to face weaker activity.

For the ASEAN-5, which includes Indonesia, Malaysia, the Philippines, Singapore and Thailand, growth is expected to ease to 4.1 percent in 2026 from 4.5 percent in 2025, before improving slightly to 4.3 percent in 2027.

The IMF said risks to the Philippine outlook remain largely unfavorable, especially if geopolitical tensions escalate again.

“Risks to growth are tilted to the downside while inflation risks are tilted to the upside, reflecting the risk of renewed geopolitical tensions in the Middle East and higher food prices, de-anchoring of inflation expectations, tighter global monetary conditions and lower remittances,” the IMF spokesperson said.

“Domestic risks stem from a slower than projected normalization of public investment, extreme climate events and weaker-than-expected reform momentum,” the spokesperson added.

Meanwhile, ADB also lowered its economic growth forecasts for the Philippines to 3.8 percent from the previous 4.4 percent for 2026 and to 5.3 percent from 5.5 percent for 2027, amid the slower growth performance and higher prices stemming from the Middle East conflict.

The latest projections were contained in the Asian Development Outlook July 2026 report.

The ADB said that growth slowed notably in the Philippines.

First quarter economic growth slowed to 2.8 percent, the weakest performance since 2021, as the flood control controversy last year and high prices stemming from the Middle East conflict weighed on consumer and investor sentiment.

The ADB said that “the Philippines saw a downward adjustment in growth projections due to delayed investments, softer private consumption amid higher commodity prices and climate-related risks.”

The IMF’s July WEO showed that global headline inflation is expected to rise to 4.7 percent in 2026 before easing to 3.9 percent in 2027.

These global price pressures could complicate the inflation outlook in the Philippines, where the Bangko Sentral ng Pilipinas has already raised interest rates twice this year to prevent second-round effects and keep inflation expectations anchored.

The IMF said monetary policy across countries should remain focused on preserving price stability, especially where inflation remains above target, exchange rate pass-through is high or second-round effects appear more likely.

It said policy may need to stay tight for longer or be tightened further to prevent expectations from becoming de-anchored.

Still, the IMF said there are upside risks to the Philippine outlook if reforms are implemented faster and global commodity prices ease sooner than expected.

“On the upside, accelerated implementation of structural and governance reforms can boost investment, increase fiscal multipliers and boost potential growth. A faster decline in energy and food price provides additional upside risks,” the IMF spokesperson said.

As the Middle East conflict drove up commodity prices, the multilateral lender raised its inflation forecasts for the Philippines.

For its part, ADB is now expecting inflation to average 5.9 percent this year from its previous forecast of four percent before easing to 3.9 percent next year, also up from its previous forecast of 3.5 percent.

While inflation slowed to 6.4 percent in June from 6.8 percent in May, it remained above the Bangko Sentral ng Pilipinas’ two to four percent target band for the year. In the first semester, average inflation was at 4.8 percent.

“Downside risks to the outlook are significant,” the ADB said, citing risks including renewed escalation of the Middle East conflict, prolonged energy market uncertainty, tighter global financial conditions, rising trade policy uncertainty and food price pressures.