Philippines faces ‘difficult situation’ as Mideast energy shocks weigh on growth

The Philippines is facing a difficult situation as its heavy reliance on oil imports tests its economic resilience amid the ongoing energy crisis from the Middle East war, the International Monetary Fund (IMF) said.   

At a press briefing during the IMF-World Bank Spring Meetings on Wednesday, IMF Managing Director Kristalina Georgieva said the war’s impact on Association of Southeast Asian Nations (ASEAN) member economies is unequal, with energy importers like the Philippines taking more toll.

“For the energy importers, those that have very little to none energy reserves of oil and gas, the situation is much more difficult,” Ms. Georgieva said. “And I very much sympathize with the people in the Philippines because I know that your country does face that difficulty.”

In its latest World Economic Outlook (WEO), the IMF slashed its 2026 gross domestic product (GDP) growth forecast for the Philippines to 4.1% from 5.6% in January, reflecting weaker-than-expected growth in 2025 and the impact of the war in the Middle East. 

The IMF also expects 4.1% growth for the ASEAN-5 region, which is comprised of Indonesia, Malaysia, the Philippines, Singapore and Thailand, this year. It was marginally slower than its 4.2% estimate in January.

Ms. Georgieva noted that the region is “in a bright spot in terms of growth and economic dynamism” but must still strengthen its regional integration to better weather shocks from the war.

“Actually, ASEAN is a bright spot in terms of growth and in terms of economic dynamism,” she said. “When you look at the impact of this shock, because of this strong buildup over the years, ASEAN is actually weathering the shock as a group of countries relatively well.”

Several ASEAN energy exporters may be better positioned to weather these shocks, in contrast to the heavier impact experienced by energy importers in the region, the IMF chief said.

In the Philippines, oil prices have soared since the United States and Israel’s attacks on Iran on Feb. 28. This week saw the first rollback in pump prices, as global oil prices fell amid the temporary ceasefire in the Middle East.

The Philippines is currently under a national state of energy emergency, which President Ferdinand R. Marcos, Jr. announced last month after noting the threats to the country’s energy supply as the war drags on.

PAUSE

In a separate blog published on Thursday, the IMF said the Philippine central bank can stand pat for now to preserve easing space.

“In economies where inflation remains below target, such as Thailand and the Philippines, further rate cuts can be paused to preserve room for easing later,” IMF Asia and Pacific Department Deputy Division Chief Andrea Pescatori and Director Krishna Srinivasan said.

Philippine inflation accelerated to 4.1% in March, breaking the nearly two-year streak of it settling below the Bangko Sentral ng Pilipinas’ (BSP) 2%-4% target.

Before this, the BSP had held its rates steady in an off-cycle meeting even though it raised its full-year inflation projection to 5.1% from 3.6%, as it noted that immediate tightening risks delaying the economy’s rebound.

This paused the central bank’s easing cycle, which began in August 2024, where it delivered a total of 225 basis points in cuts to bring the policy rate to 4.25%.

BSP Governor Eli M. Remolona, Jr. on Tuesday said that the expected economic relief from the government’s ongoing fiscal reforms has opened space for monetary policy tightening.

However, he noted that the central bank is still monitoring incoming data, particularly inflation, for clearer guidance for its upcoming policy review on April 23.

REGIONAL SHOCKS

Meanwhile, Asia’s resilience against last year’s US tariff policies and global trade uncertainty will be shaken as the Middle East conflict stokes inflation, weakens external balances and limits policy options, Mr. Pescatori and Mr. Srinivasan said in the IMF blog.

“Asia entered 2026 on a strong footing,” they said. “Despite the region bearing the brunt of US tariffs last April and persistent trade policy uncertainty, growth was resilient in 2025 and trade remained robust.”

“Now, the war in the Middle East and the ensuing energy supply shock are raising inflation, weakening external balances, and narrowing policy options, underscoring the region’s dependence on imported oil and gas,” they added.

The multilateral lender sees Asia expanding slower at 4.4% this year and 4.2% next year from 5% in 2025.

“Should the shock persist or intensify, as in the WEO’s adverse and severe scenarios, growth through 2027 could be reduced cumulatively by 1% to 2%,” Mr. Pescatori and Mr. Srinivasan added.

Inflation in the region is also expected to quicken to 2.6% by yearend, before easing to 2.4% in 2027. Still, this is faster than the 1.4% clip recorded last year.

“The war introduced a new and more immediate headwind clouding the near-term outlook for Asia, where net oil and gas imports equal about 2.5% of economic output,” the blog read.

Amid this, Ms. Georgieva said the crisis calls for a stronger regional integration among ASEAN countries as it faces shared economic woes.

“The Philippines is now leading the ASEAN. I am going to be there when the meeting takes place,” she said. “And I do believe that this is very important for regions that have the potential to trade more within the countries of the region.”

“Build that integration. You will benefit from it in a more shock-prone world,” Ms. Georgieva added.

Source: Business World

Philippines’ Q4 GDP growth sharply slows to 3% amid corruption scandal

The Philippine economy grew 3% in the last quarter of 2025 compared to a year earlier, weaker than the downwardly revised 3.9% expansion for the previous quarter, the country’s statistics agency said.

The pace fell below a 4% median forecast in a Reuters poll, and brought full-year gross domestic product (GDP) growth to 4.4%, missing the government’s 5.5% to 6.5% target for 2025.

The lackluster performance of the Philippine economy raised the odds of another central bank rate cut, and was caused in part by a corruption scandal tied to infrastructure projects that slowed public spending last year.

Bangko Sentral ng Pilipinas Governor Eli M. Remolona said last week that if fourth quarter GDP proved to be weaker-than-expected, it would help the central bank decide whether to take action at a rate setting meeting scheduled for February 19.

The central bank has cut its benchmark rate by a cumulative 200 basis points to a three-year low of 4.5% in the current cycle, which Remolona has said was nearing its end.

Source: Business World

Growth slump may drag until 2027

The Philippines’ economic slowdown may extend through 2027, raising the odds of deeper monetary easing by the Bangko Sentral ng Pilipinas (BSP), according to Deutsche Bank Research.

In a report, it said the widening corruption scandal in the Department of Public Works and Highways — involving alleged fund diversion and irregularities in flood control projects — is likely to weigh on public and private investment for several years. It warned that the fallout could suppress growth and push the central bank to cut policy rates more aggressively.

“The public works corruption scandal is likely to be a drag on growth, as it reduces public and private capex (capital expenditure),” Deutsche Bank economists Vaninder Singh and Joey Chung said in the report released on Thursday. “BSP is likely to cut twice more, with risks of an even deeper easing cycle.”

The BSP has lowered borrowing rates by 175 basis points (bps) since August 2024, including a fourth straight 25-bp cut in October that brought the benchmark rate to a three-year low of 4.75%.

BSP Governor Eli M. Remolona, Jr. this week signaled that a fifth cut is possible at the Monetary Board’s December meeting, citing expectations that full-year growth will fall well below target. “Baby steps” of 25 bps remain the most likely pace, he added, ruling out larger cuts.

Mr. Remolona has said the economy might expand by only 4-5% this year, compared with the government’s 5.5-6.5% goal — a target he acknowledged is now out of reach.

The economy grew 4% in the third quarter as consumer and investor sentiment weakened amid the budget scandal, pulling the nine-month average to 5%.

Deutsche Bank expects growth to remain subdued next year, projecting a 5.1% expansion in 2026, well below the government’s 6-7% goal. It sees a modest improvement to 6% in 2027 as investment conditions stabilize.

Its baseline view is for 50 bps of additional easing, bringing the policy rate to a terminal 4.25% by mid-2026.

“DB Economics expects two further rate cuts in response to a deeper negative output gap that will last longer, likely well into 2027,” according to the report. “The risk is, if anything, for an even deeper easing cycle.”

Meanwhile, ING Think also sees room for more easing next year, anchored on its expectation that inflation across major Asian economies including the Philippines will stay within target in 2026.

“In 2026, inflation is unlikely to rise above the central bank targets in any of the Asian economies under our coverage, and we still expect rate cuts in… the Philippines,” it said in a separate report.

Philippine inflation averaged 1.7% in the first 10 months of the year, matching the BSP’s full-year forecast. The central bank expects inflation to settle at 3.1% in 2026 and 2.8% in 2027.

Deutsche Bank also flagged risks to the peso, warning that the currency could temporarily weaken past P60 a dollar next year if corporate sentiment deteriorates further.

It expects a recovery later in the year as import demand eases and the current account deficit narrows.

“Poor corporate sentiment is showing through not just in potential capex decisions but also in views on the currency,” it said, citing conversations with onshore clients.

“We suspect this will play out in phases over the course of 2026 — a possible peso weakness first, followed by some recovery as the current account deficit shrinks due to the infrastructure and capex factors,” it added.

It also noted that while stretched short-peso positions could push the currency beyond P60, the exchange rate should eventually return to P57-P58 or firmer if the dollar softens.

The peso fell to P59.17 a dollar on Nov. 12, its weakest on record.

Source: Business World