BofA sees below 3% growth for Philippines

MANILA, Philippines — The Philippine economy could grow by less than three percent this year as weak household spending and sluggish investment continue to drag domestic demand, while renewed inflation pressures raise the possibility of further interest rate hikes.

In its report, Bank of America (BofA) Global Research said economic growth could improve modestly to 3.5 percent in 2027, provided global oil prices ease and international interest rates remain relatively stable.

“We see gross domestic product (GDP) growth staying below three percent in 2026 as weak consumption and investment continue to weigh on domestic demand,” it said. “But if the government’s plans to increase spending keeps gaining momentum, the outlook for 2027 could be better.”

The assessment followed meetings with government officials, private sector analysts and local investors in Manila on Oct. 5.

GDP, which measures the total value of goods and services produced in the economy, expanded by just 2.8 percent in the first quarter and 2.3 percent in the second quarter, reflecting continued weakness in domestic economic activity.

While investment conditions could improve slightly in the second half, BofA said spending y both the government and private sector remained insufficient to drive a stronger economic rebound.

Even with the projected improvement next year, BofA expects the economy to continue operating below its potential, suggesting that businesses and workers could face an extended period of subdued economic activity.

Meanwhile, the investment bank warned that renewed inflation pressures could complicate the Bangko Sentral ng Pilipinas (BSP)’s monetary policy decisions.

BofA said rising global oil prices have increased the likelihood that the central bank would revise its inflation forecasts upward for both 2026 and 2027. Persistently elevated inflation could prompt the central bank to raise borrowing costs further despite slowing economic growth.

The BSP has increased its benchmark policy rate three times this year, bringing it to five percent, which was previously BofA’s expected peak for the tightening cycle.

“Still, given BSP’s inflation mandate and extended period of inflation remaining above its target, the probability of more rate hikes in the future has risen, in our view,” BofA said.

However, BofA said aggressive rate increases could eventually be followed by equally sharp reductions in 2027 or 2028 if inflation declines substantially.

On the external front, the investment bank warned that the peso could remain under pressure from the country’s substantial current account deficit, or the shortfall when payments to the rest of the world for trade and other transactions exceed corresponding receipts.

The current account deficit reached 6.4 percent of GDP in the first half, significantly above the level of below three percent that BofA described as more manageable.

BofA said most investors it consulted expected the peso to weaken beyond the 63-per-dollar level, citing external imbalances, weak economic growth and narrowing interest rate differentials.

The bank also said weaker growth, elevated inflation and persistent fiscal pressures have weighed on investor sentiment toward Philippine government bonds.

However, shorter-dated government securities were beginning to offer attractive value as investors positioned themselves for continued economic uncertainty.