ADB Projects Slower Philippine Economic Growth in 2026, 2027 Amidst Middle East Crisis and El Niño

The Asian Development Bank (ADB) is expecting the Philippine economy to grow slower due to lingering uncertainty due to the Middle East crisis and severe dry weather brought by the El Niño phenomenon. In the September edition of its flagship publication, Asian Development Outlook (ADO), the Manila-based multilateral lender said the country’s gross domestic product (GDP) is forecasted to grow by 3.3% in 2026 before rising by 5.1% in 2027. The latest projections are slower than the GDP growth projection of 3.8% in 2026 and 5.3% in 2027 in the July edition of the ADO. The ADB said, “The prolonged Middle East conflict dampened the economy more than expected, with weaker investments in the first half this year and soaring prices of imported fuel and other vital commodities such as fertilizers.” Economic growth stood at 2.8% in the first quarter, the slowest pace since the 3.8% contraction in the first quarter of 2021, when the COVID-19 pandemic lockdowns were in place. It decelerated further to 2.3% in the second quarter, the weakest since the fourth quarter of 2009, excluding the contraction seen during the COVID-19 pandemic years, when growth was at 1.8%. The lender noted that heightened uncertainties in the global environment from a prolonged Middle East conflict and climate-related shocks, including a severe El Niño dry weather episode starting in late 2026, pose as major downside risks to the growth outlook of the Philippine economy. Nonetheless, the ADB said the Philippine economy will return to an upward growth path in 2027 backed by expected upticks in the services and industry sectors and timely government spending, including on critical infrastructure, according to a report released today by the Asian Development Bank. “The economy continues to feel the impact of the Middle East conflict, but business indicators point to expected improvements in economic activity, with the industry sector still looking to expand next year,” said ADB Philippines country director Andrew Jeffries. “For the Philippines to ride through the effects of external and domestic shocks in the near term, timely government spending on planned investments especially in the social sector and critical infrastructure projects will be important,” said Jeffries. Inflation Moreover, the ADB said inflation is expected to average at 5.9% in 2026, same as the July forecast, before slowing to 4.4% in 2027, slightly higher than the 3.9% projected in the July report. It said that food prices continue to be a key contributor to inflation and will likely remain under pressure with the effects of El Niño on agricultural output, according to the report. The services sector, accounting for around 60% of GDP and employment, will remain a key driver of growth, along with an expected pick up in manufacturing and public construction, according to the ADB. The lender noted that the government plans to accelerate implementation of major infrastructure projects such as transport networks, railways, ports, bridges, as well as health, education, and agricultural infrastructure. The ADB added the government is allocating one-third of its proposed 2027 national budget for social services, such as better health services, educational assistance and early childhood development, upskilling, and conditional cash transfers and food vouchers for vulnerable families. The lender noted that the government has been pursuing programs to mitigate the effects of the Middle East conflict and the El Niño phenomenon on agriculture and vulnerable sectors, such as rehabilitating irrigation facilities, raising investments in water resource management, distribution of drought-resistant seeds and inputs, and enhanced drought monitoring systems. The government likewise has helped the poor and disadvantaged groups through targeted cash assistance, emergency livelihood support, fuel subsidies, public transport fare discounts, and support to small businesses and heavily affected sectors, including transport and agriculture, under its Unified Package for Livelihoods, Industry, Food, and Transport (UPLIFT) program, according to the ADB. The lender said it is preparing assistance to the government’s Middle East conflict response via a Countercyclical Support Facility. —VAL, GMA News