By Katherine K. Chan, Reporter
The International Monetary Fund (IMF) slashed its growth projections for the Philippines until 2027 following the economy’s dismal performance in the second quarter and renewed shocks from the Middle East war.
In a statement following its recent Article IV Consultation in the Philippines, the IMF said it now sees Philippine gross domestic product (GDP) expanding by 3.4% this year from its earlier estimate of 3.9%.
This is a tad below the government’s 3.5-4.5% growth goal for 2026, and slower than the 4.4% expansion last year.
IMF Mission Chief for the Philippines Andrea Pescatori said the IMF’s decision to downgrade its Philippine growth outlook for this year was largely driven by the weaker-than-expected growth in the second quarter.
“Most of the revision comes from Q2 data release. The GDP (growth) was much lower than what we projected,” he told a press briefing in Manila on Friday.
In the second quarter, the economy posted a new post-pandemic low growth of 2.3%, as weak investments due to last year’s flood control mess contracted public construction, while red-hot inflation amid the ongoing Middle East war squeezed household spending.
If the IMF’s 2026 growth forecast holds, the Philippines will see its weakest growth since the pandemic.
Excluding the pandemic, it would be the slowest expansion in 17 years or since 2009, when GDP growth stood at 1.4%.
According to Mr. Pescatori, the “protracted property sector slowdown added to the drag” in the second quarter as vacancy rates remained elevated.
“Honestly, we do not see a deterioration of the property market and the housing market, but it’s just that we don’t see a positive contribution to growth,” he added.
The outlook for the real estate sector remains gloomy, with Mr. Pescatori noting that rising borrowing costs may detail the sector’s rebound.
Should the slowdown drag on, he added, the country’s financial stability may also be imperiled.
For 2027, the Washington-based multilateral lender also cut its GDP growth forecast to 5.1% from 5.5% due to the compounding effects of soaring prices amid the Middle East war and slow investment recovery. This is still within the government’s 5-6% growth target for 2027 to 2030.
“The renewed shock here is having implications for next year,” Mr. Pescatori said. “So, the revision for next year now is a combination of the renewed escalation in the Middle East, higher oil and also food prices, which have a negative (effect) on purchasing power of households, especially.”
“And this is combined also with a slower rebound in public investment,” he added.
INFLATION RISKS
Meanwhile, the IMF trimmed its inflation estimate for this year by a tad to 5.6% from 5.7%, but raised it to 4.1% from 3.3% for 2027.
Mr. Pescatori said the headline print coming in slower than they had anticipated in the last two months prompted the IMF to downgrade its full-year projection for 2026.
Lower food and utility prices dragged headline inflation to a five-month low of 6.1% in August, marking the fourth straight month of deceleration.
However, it stayed above the central bank’s 3% target for a sixth consecutive month, bringing the year-to-date average inflation to 5.2%.
Spiraling oil prices feeding into the headline print may prompt the Bangko Sentral ng Pilipinas (BSP) to raise its policy rate by another 25 basis points (bps) this year, Mr. Pescatori said.
“Well, this is predicated on the fact that the current increase in oil prices, which has a sharp and fast pass-through to headline inflation, will probably show up in the next phase, especially for Q4,” he added.
Domestic fuel prices climbed for a third straight week, pushing the cost of diesel to as much as P121 per liter, gasoline to P111.60 per liter, and kerosene to P147 per liter.
The BSP began tightening its monetary policy in April, raising its benchmark interest rate by a cumulative 75 bps as of August to an over one-year high of 5%.
BSP Governor Eli M. Remolona, Jr. said their latest hike aimed to preemptively contain inflation risks from volatile global oil prices, the looming “super” El Niño, and wage hike.
Markets are still pricing in more rate hikes as Mr. Remolona left the door open for further tightening as needed to steer inflation back to their target.
On the other hand, the IMF turned more pessimistic on inflation risks for next year amid renewed pressures from oil and food, particularly rice.
“It’s mostly driven by both oil and food prices. And for the food prices, it’s really rice prices that concern us,” Mr. Pescatori said. “We have a 25% increase in rice prices in our baseline projections. And since rice accounts for around 12% of the consumer basket, this will obviously keep pushing up headline inflation numbers.”
He also noted that the looming El Niño event raises a concern for rice production as disruptions will likely stoke prices.
Based on latest Philippine Statistics Authority data, the average price of regular milled rice stood at P49.96 per kilo in the first half of September, up by 23.94% annually from P40.31 and by 0.64% from P49.64 the previous month.
Meanwhile, a kilo of well-milled rice was sold at an average of P56.52 during the period, climbing by 19.92% from P47.13 a year ago and by 1.05% month on month from P55.93.
“There are obviously downside risks also to the agricultural sector and to the rice output, which can have an effect on GDP,” Mr. Pescatori said.
“However, in terms of the contribution to value-added, rice is much less than in the consumer basket. So, we are way less worried about the impact on growth and GDP than on inflation for rice production,” he added.
Still, the IMF official noted that inflation may moderate by the second half of next year to ease toward the BSP’s target at 3.2% in 2028.