THE PHILIPPINE ECONOMY may be among the slowest growing in Southeast Asia this year, as weak domestic demand keeps growth below its potential, Bank of America (BofA) said.
In a report dated Sept. 8, BofA Global Research kept its gross domestic product (GDP) forecasts for the Philippines at 2.5% in 2026 and 3.5% in 2027.
For 2026, this projection puts the Philippines on par with Thailand as the slowest-growing economies among the Association of Southeast Asian Nations (ASEAN) members included in the report.
The two countries are expected to trail Vietnam (8.2%), Indonesia (5.3%), Malaysia (5.2%), and Singapore (5.1%) this year.
If BofA’s forecasts hold, the Philippines will miss its growth target for five straight years. Economic managers are targeting 3.5%-4.5% GDP growth this year and 5%-6% in 2027-2030.
“In second half of 2026, we see GDP growing 2.5% with gentle gains in consumption and the bottoming of investment spending,” BofA China & Asia Economist Helen Qiao and Asia Economist Ting Him Ho said.
“Government spending may help mitigate the effects of the oil shock by aiming subsidies at consumer and transport groups most affected,” they added.
The Philippine economic growth slumped to a post-pandemic low of 2.3% in the second quarter, bringing first-half growth to 2.6%. Economic managers said that last year’s flood control corruption scandal continued to weigh on public construction and investments, while the Middle East war-driven energy shocks dampened household spending.
“Domestic demand grew only 0.9% in 2Q26 with net trade providing the lift to overall GDP,” the BofA economists also noted. “Within domestic demand, private consumption slowed, investments shrunk, and government spending was unable to fully cushion.”
For its part, Oxford Economics said political risks may weigh on Asia’s growth prospects for next year.
“The political backdrop for 2027 is mixed, with risks less favorable in emerging Asia than in developed Asia,” Oxford Economics Head of Asia Economics Louise Loo said in a separate report on Thursday.
She added that the Philippines remains exposed to “procurement, guarantees, and Vice-President Sara Duterte’s impeachment proceedings.”
The Philippine economy still benefits from overseas Filipino workers’ remittances, which continue to fuel household incomes, Ms. Loo noted.
Meanwhile, BofA sees the BSP ending its tightening cycle earlier than its regional peers due to its sluggish growth.
This also came as it noted that the expected inflation peak later this year may be softer than anticipated.
“Slower growth and inflation peaking at a lower level may restrain the Bangko Sentral ng Pilipinas (BSP) from aggressive monetary tightening,” Ms. Qiao and Mr. Ho said.
Still, the BofA economists cautioned against inflation risks from renewed oil price spikes, rising rice prices, and the potential 12% minimum wage increase.
“Inflation may still peak in the fourth quarter of 2026 but at a rate lower than previously feared,” they said. “Nonetheless, inflation may still be vulnerable to resurgent oil prices, gradually increasing rice prices, and upward pressure that may come from a 12% increase in minimum daily wages.”
In August, headline inflation eased to a five-month low of 6.1% from 6.2% in July amid lower food and utility prices.
However, August was also the sixth month in a row that inflation breached the central bank’s 3% target, bringing the average headline figure to 5.2% to date.
For Ms. Qiao and Mr. Ho, the BSP’s third consecutive 25-basis-point (bp) hike last month may have marked the end of its tightening cycle.
At its Aug. 27 meeting, the Monetary Board tightened for a third straight meeting in a preemptive move to rein in inflation risks from the looming severe El Niño, wage hike, and volatile global oil prices.
It raised its key policy rate by 25 bps to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since it first tightened in April.
Following its August policy review, the BSP said inflation will likely peak in the fourth quarter this year as the “Super El Niño” may disrupt agricultural production, which could ripple to food prices. It likewise flagged risks from volatile oil prices and the now-suspended wage hike.
The BSP sees headline inflation exceeding its target over the next three years at 6.1% this year, 5.4% in 2027, and 3.3% in 2028.
Meanwhile, Oxford Economics’ Ms. Loo said the BSP, alongside the Bank Indonesia, will likely return to policy easing next year.
“To be sure, regional central banks have delivered around 350 bps of cumulative tightening in 2026, and — with the probable exception of the Philippine and Indonesian central banks — are unlikely to unwind much of it next year,” she said. — Katherine K. Chan