PHILIPPINE growth may drop to 3.79% in 2026 if the war in the Middle East is extended and becomes normal for the economy, De La Salle University (DLSU) said in a report.
In their Philippine Economic Report for April, DLSU economists said their long-term growth outlook showed a decline from the 4.19% average in March.
“If it happens, it will represent a significant drop in relation to the already low growth rate of 2025 (4.4%),” the report said.
“We insist that if the war continues, the Philippine economy (already plagued by pessimistic corruption and weak capital formation) will remain sluggish – even as Iran ensures safe passage of Philippine ships through the Strait of Hormuz,” it added.
If the forecast comes true, growth will fall short of the government’s target of increasing GDP by 5-6% by 2026.
“Medium-term growth is expected to improve slightly. We forecast growth to reach 4.23% in 2027 and 4.17% in 2028. Both figures remain well below the government’s growth targets of 5.5-6.5%,” the report said.
“This estimate seems to be pointing to a long period of low capital formation that inhibits potential growth beyond the current crisis,” it added.
The government declared a one-year state of emergency last month in response to the war that broke out in the Middle East.
Meanwhile, economists said inflation is expected to fall near or above the upper end of the 2-4% target band by the end of the year, citing “a set of risks that may disappear anytime soon.”
“Any further disruption in oil supply will increase oil prices and domestic prices may follow suit,” he said.
“In other words, even if global conditions are calm, inflation may remain high until the second half of the year. The Philippine economy may begin to show signs of stagflation,” he added.
Philippine inflation rose to a nearly two-year high of 4.1% in March, breaching the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target.
The report said that financial and monetary authorities are faced with critical decisions as the crisis continues.
“Repeated supply shocks make interest rate decisions difficult, while high financial risks make policy transmission less predictable,” he said.
“Clear communication, effective prudential measures, and strong communication with monetary policy are essential to strengthen expectations and protect growth and stability,” it added.
The BSP kept its policy rate unchanged at 4.25% during a surprise meeting last month, ahead of the Monetary Board’s regular policy meeting on April 23.
“Monetary policy should balance the protection of the target with macroeconomic stability,” the report said.
“In accordance with sound financial principles, the government’s initial response reflects two main objectives: providing targeted assistance to economically vulnerable groups and maintaining financial discipline to protect the state’s financial position,” it added.
It said that “well-designed, short-term, and well-targeted measures can protect vulnerable groups and sustain social cohesion, while credible financial mechanisms and coherent monetary policy are essential to contain inflationary risks.”
It added that the government must address structural constraints in food, energy, transportation, and logistics.
“This will require adopting a more structural view – one that allows for a repositioning of monetary policy,” he said.
“Such an approach will go beyond preferential treatment and savings to actively supporting the productive sectors of the economy, sustaining employment, and building the material capacity needed to meet and respond to future challenges,” it added. – Justine Irish D. Tabile
