Philippines' Growth Forecasts Downgraded by IMF, ADB Amid Global Headwinds

The International Monetary Fund (IMF) and the Asian Development Bank (ADB) have successively lowered their economic growth forecasts for the Philippines. The IMF now projects the Philippines to post a slightly lower growth this year of 3.9 percent, a 0.2 percent downward adjustment from its April projection of 4.1 percent. For 2027, the IMF projects Philippine growth to reach 5.5 percent, 0.3 percent lower than its April forecast of 5.8 percent. Similarly, the ADB, headquartered in the Philippines, announced its own growth projection for the developing Asia region, pointing out that the Middle East conflict is expected to weigh more heavily on developing Asia and the Pacific than earlier anticipated, with growth moderating to 4.9 percent this year, down from 5.5 percent in 2025. However, growth is expected to rise to 5.1 percent next year. For the Philippines, ADB now projects an adjusted growth of 3.8 percent for this year and 5.3 percent for 2027. According to the ADB, activity remained firm early this year, supported by consumption and investment, but higher energy costs, supply disruptions, and tighter financial conditions are expected to dampen growth in the coming months, with effects unwinding only gradually. Inflation in Asia and the Pacific, the ADB forecasts, will rise further this year to 4.3 percent as higher energy prices pass through to food and other costs, before moderating to 3.4 percent in 2027. Price pressures, the regional bank noted, have broadened and are likely to remain elevated for some time, even as oil prices ease. The region, the ADB said, remains resilient, but policymakers will need to balance support for growth with efforts to contain inflation, while guarding against several risks. Re-escalation of the conflict and prolonged energy market uncertainty remain key threats to the outlook. These could further tighten energy markets, raise risk premia and intensify inflationary and external pressures. New tariffs and elevated trade policy uncertainty could also weigh on the region’s prospects. The IMF explained that the modest slowdown it projects for the global economy is the effect of the war in the Middle East, but is fortunately being partly offset by accelerated demand-driven momentum in the global technology cycle, thanks to advances in artificial intelligence (AI) and its adoption. The impact of technology, the IMF said, varies widely based on countries’ exposure to the war and position in the technology value chain. Energy exporters outside the conflict zone benefit from favorable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers. In contrast, activity weakens for energy importers with limited participation in the technology value chain, a group that includes many low-income countries. Global headline inflation, the IMF said, is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026 before declining to 3.9 percent in 2027. Slightly revised upward from April, these projections indicate that the disinflation trend in place since the beginning of 2024 has stalled. Risks to the outlook, it cited, are more balanced than in April but are still tilted to the downside. The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, raise prices and weigh on financial conditions. Trade fragmentation, the IMF warned, could accelerate, possibly hurting output and increasing prices. A possible correction in technology-driven expectations adds to the downside risks, whereas eroded policy buffers can amplify those risks. Upside risks stem from a swifter-than-expected normalization in energy markets, stronger-than expected technology investment, a revival of durable cooperation that lowers trade barriers and structural reform that raises medium-term growth. Policy priorities, it said, are restoring price stability, supported by clear communication, central bank independence and strong financial oversight, while rebuilding fiscal buffers and using fiscal tools sparingly through temporary, targeted support that preserves price signals. Structural reforms, however, the IMF stressed, are needed to promote energy security. AI readiness, domestic rebalancing, and international cooperation should be strengthened to relieve the strain of ongoing tensions. Global economic activity and the outlook, it continued, are being shaped by two major forces, pushing in opposite directions with asymmetric effects across countries. First is the negative supply shock induced by the war in the Middle East. Second is the ongoing positive technology shock manifesting in accelerated momentum of the global technology cycle, in no small part driven by advances in and deployment of AI tools. In emerging market and developing economies, growth is projected to slow to 3.8 percent in 2026 before recovering to 4.5 percent in 2027. The revisions are heterogeneous, reflecting differences in commodity dependence, geographic exposure, remittances and tourism receipts, sensitivity to financial conditions, and position in the global technology value chain. Swedish banker and industrialist Marcus Wallenberg, once again quietly flew into town yesterday and paid his first courtesy call to President Marcos to reaffirm the Wallenberg sphere’s continuing strong economic and business ties with the Philippines. Mr. Wallenberg last visited the country in 2024. He is the chairman of Swedish bank Skandinaviska Enskilda Banken, Saab AB, Wallenberg Investments AB, FAM AB, Patricia Industries and The Royal Swedish Academy of Engineering Sciences (IVA), and also serves on the boards of Investor AB, AstraZeneca Plc, EQT AB and the Knut and Alice Wallenberg Foundation. In his last trip to Manila in 2024 for a short three-day visit, he met with Philippine government officials and members of top conglomerates the Ayala Group, the Aboitizes, the Gokongweis, the Sys and the Lopezes.