ADB, S&P Cut Philippines Growth Forecasts Amid Mideast Crisis, Weak Investments

MANILA, Philippines — The Asian Development Bank (ADB) and S&P Global Ratings have significantly lowered their economic growth forecasts for the Philippines, citing the prolonged impact of the Middle East crisis and weaker investments. Both institutions point to rising inflation pressures and delayed public investment as factors weighing on domestic demand. The ADB now expects the Philippines to grow by 3.3 percent this year, down from its July forecast of 3.8 percent. This figure falls below the government's revised target of 3.5 to 4.5 percent. For 2027, the ADB also trimmed its growth forecast to 5.1 percent from 5.3 percent. Teresa Mendoza, ADB Philippines senior economics officer, attributed the lowered forecasts to persistent external and domestic headwinds, including escalating geopolitical tensions heightening inflation and uncertainty, weaker investments in the first half, and soaring prices of imported fuel and other vital commodities. Similarly, S&P has sharply cut its Philippine growth forecast for this year to 2.9 percent, the steepest downgrade among the Asia-Pacific economies it covers. S&P cited weak government investment, high energy costs, and elevated food prices weighing on domestic demand. The agency lowered its 2026 GDP growth projection from 4.1 percent to 2.9 percent and its 2027 forecast from 5.8 percent to 5.4 percent. S&P economist Vishrut Rana stated that weaker first-half performance and expectations of a more gradual recovery prompted the downgrade, noting a sharp pullback in public capital expenditure and a steep energy price shock. Regarding inflation, the ADB maintained its Philippine inflation forecast at 5.9 percent for this year. However, it raised its 2027 inflation forecast to 4.4 percent from 3.9 percent due to anticipated impacts of the El Niño phenomenon on agricultural output. S&P expects inflation to average 5.5 percent this year, a sharp increase from 1.7 percent in 2025, before easing. Given that inflation remains above target, S&P anticipates the Bangko Sentral ng Pilipinas (BSP) will deliver another 25-basis-point rate increase before year-end, bringing the policy rate to 5.25 percent. It then sees the rate declining to 4.5 percent in 2027 and four percent in 2028. Andrew Jeffries, ADB Philippines country director, noted that while the impact of the Middle East conflict continues, business indicators point to expected improvements in economic activity, with the industry sector looking to expand next year. He emphasized the importance of timely government spending on planned investments, particularly in the social sector and critical infrastructure projects, for the Philippines to navigate near-term external and domestic shocks. The ADB expects a gradual investment recovery starting in the fourth quarter of this year, supporting the country's growth, which aligns with the government's move to accelerate ongoing flagship infrastructure projects, especially railway projects. The ADB is preparing assistance through a countercyclical support facility to mitigate the effects of the Middle East conflict and El Niño phenomenon. Jeffries stated that this facility aims to fill a budget gap created by the crisis and the government's UPLIFT program. The government has seen an approximately $7 billion increase in spending due to fuel subsidies and assistance to those affected by the crisis. Source: Philstar Business