IMF downgrades Philippine economic growth outlook

The International Monetary Fund (IMF) has downgraded its economic growth outlook for the Philippines for this year and the next, due to the slower-than-expected performance in the first quarter, and the Middle East war that has caused a bigger drag than initially anticipated.

In its latest World Economic Outlook (WEO), the IMF said it now expects the Philippine gross domestic product (GDP) to grow by 3.9% this year, slower than the 4.1% projection it made in April. It also downgraded its 2027 forecast to 5.5% from 5.8% previously.

“This reflects a weaker than expected outturn in 2026 Q1 alongside a larger-than-expected effect of the war in the middle East on prices and activity in the Philippines,” an IMF spokesperson said.

Economic growth stood at 2.8% in the first quarter, slower than the 3% seen in the fourth quarter of 2025, and the 5.4% in the first quarter of 2025. It is also the slowest since the 3.8% contraction during the COVID-19 lockdowns in the first quarter of 2021.

Economy and Plannning Secretary Arsenio Balisacan earlier attributed the decline to the impact of the flood control corruption controversy on consumer sentiment and business and investment confidence, along with the geopolitical risks.

“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 said.

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

Inflation clocked in at 6.4% in June, marking the second straight month of deceleration. It is still faster, however, than the government’s full-year target range of 2% to 4%.

The Bangko Sentral ng Pilipinas (BSP) in its June policy meeting raised its inflation outlook for 2026 to 6.4% from 6.3% in its April 23 meeting, citing global supply shocks stemming from the conflict in the Middle East.

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

The inter-agency Development Budget Coordination Committee (DBCC) has already downgraded its growth target for the year to 3.5% to 4.5%. Economy and Planning Secretary Arsenio Balisacan expects a pickup in the second half, as sentiment and spending are expected to improve. — RSJ, GMA News