Philippines GDP Growth Forecast Slashed on Inflation, Weak State Spending

MANILA, Philippines — Singapore-based OCBC Bank has slashed its growth outlook for the Philippines this year, citing persistent inflation and weak government spending as the principal drags on domestic demand. In a note, the OCBC Group Research said gross domestic product (GDP) may grow 3.2 percent year-on-year in 2026, down from its previous projection of 3.8 percent. If the forecast holds, this year’s expansion would mark a slowdown from the 4.4-percent growth in 2025. The estimate also falls short of the Marcos administration’s downwardly revised growth target of 3.5 percent to 4.5 percent. OCBC expects inflation to average 5.8 percent this year, above the central bank’s 3-percent target, as price gains could remain above the 6-percent level for the rest of 2026 due to “broadening price pressures and potentially second-round effects.” Stubbornly high inflation, combined with weak fiscal support from the government, could weigh on household consumption, which historically accounted for about 70 percent of GDP, the bank said. “Domestic demand remains the principal drag, from higher inflation and limited fiscal support,” OCBC said. The slowdown was already evident in the first half, when the economy expanded by just 2.6 percent. Growth was weighed down by the fallout from the Middle East conflict, which hit an economy still recovering from a confidence shock linked to a major corruption scandal. To combat inflation, the Bangko Sentral ng Pilipinas (BSP) has delivered three quarter-point rate hikes since April, bringing the policy rate to 5 percent. BSP Governor Eli Remolona Jr. said the August rate hike was a “preemptive” response to emerging risks from a severe El Niño episode and possible wage hikes. On the growth side, Remolona said local economic fundamentals “appear to be intact over the medium term,” adding that a recovery in government spending could help stimulate activity in the second half of the year. Looking ahead, OCBC said the BSP may deliver two more quarter-point rate increases at each of the central bank’s October and December meetings. The foreign bank also expects economic growth to rebound to 4.6 percent next year. INQ