A SINGAPORE-BASED economic research institution finds it rather urgent for the Philippine government to strengthen flood control governance and improve management of public investments as it continues to see economic growth sliding to 3.4 percent in 2026.
In its recommendation, the ASEAN+3 Macroeconomic Research Office (AMRO) particularly hinted at the need to institute reforms to increase consumption and investments.
AMRO is an international organization composed of the 10 ASEAN member countries plus China (including Hongkong), Japan and South Korea, that monitors and supports financial stability in the ASEAN+3 region.
Among its key functions are: macroeconomic surveillance by identifying economic and financial risks in member countries; regional support (it backs the Chiang Mai Initiative Multilateralization) regional financial arrangement and policy advisory by providing research and policy recommendations to member states.
AMRO said it expects the Philippine economy to grow 3.4% in 2026, down from 4.4% in 2025, before rebounding to 4.8% in 2027, based on preliminary findings of the annual consultation visit ending Aug. 27.
“Growth this year will be weighed down by weaker private consumption amid higher inflation and subdued investment, although a gradual recovery in public construction in the second half of the year and resilient exports should provide some support,” AMRO Group Head and Lead Economist Jinho Choi said in a statement.
AMRO forecast headline inflation to accelerate sharply to 5.4% in 2026 from 1.7% in 2025, driven by elevated global oil prices following the Middle East conflict and second-round effects on food, services and other non-energy items. Inflation is projected to moderate to 3.8% in 2027, reported Bilyonaryo.
It said that further monetary tightening by the Bangko Sentral ng Pilipinas would be warranted if core inflation remained elevated and persistent or if inflation expectations showed signs of becoming de-anchored.
AMRO warned that delayed or weaker-than-expected recovery in public investment could further dampen growth and prolong the economic downturn. It urged the government to restore well-governed infrastructure investment while maintaining its commitment to medium-term fiscal consolidation.
AMRO asked Manila to institutionalize improvements in flood-control governance across the entire public investment cycle and tie climate-resilience initiatives to measurable outcomes. It also recommended strengthening energy security through a more diversified energy mix and reliable power supply.
Higher energy import costs are expected to widen the current account deficit and put pressure on the peso, although AMRO said the country’s external buffers remained adequate.
“Growth this year will be weighed down by weaker private consumption amid higher inflation and subdued investment, although a gradual recovery in public construction in the second half of the year and resilient exports should provide some support,” AMRO Mission Chief and Lead Economist Jinho Cho, the Star quoted its press briefing on Thursday.
In the second quarter, the economy posted a new post-pandemic low growth of 2.3%, weaker than 2.8% in the first quarter and 5.4% a year ago. This brought its first-half growth to 2.6%.
AMRO Chief Economist Dong He said the Philippines is among the hardest hit by the Middle East war-driven energy shock but is not necessarily an underperformer in Southeast Asia.
“I think the Philippines is probably one of the economies that has suffered the most from this round of energy shock. But I don’t necessarily say that it’s an underperformer. It’s a reflection of the type of energy mix you have,” he explained.
The country, a net importer of crude oil, has been under a year-long energy emergency since late February when the war in the Middle East started.
While they view the current slowdown as cyclical, still it noted that public investments remained weaker for longer and the expected Super El Niño could further delay economic recovery.
“Over the medium term, structural challenges could pose greater obstacles to the economy’s growth potential,” it added.
Choi cautioned against renewed price risks arising from lingering uncertainty over continued unrest in the Middle East.
If AMRO’s forecast holds true, inflation will breach the central bank’s 3% target, marking a sharp acceleration from last year’s 1.7%, Business World reported.
Headline inflation has cooled for a third month in a row but stayed above the BSP’s 4% ceiling for five consecutive months at 6.2% in July. In the seven month-period, inflation stood at 5%.
“Elevated headline inflation reflects global oil prices remaining above pre-conflict levels, alongside second-round effects on non-energy items, including food and services,” Choi said.
Meanwhile, Mr. He noted that despite the peso’s recent depreciation against the dollar, they see limited exchange rate pass through to domestic prices.
“So, in our analysis, actually, there is somewhat a limited pass-through from exchange rate to domestic prices. I think the BSP has a very successful inflation targeting framework in place,” AMRO’s chief economist said.
“In this kind of framework, (the) exchange rate typically absorbs shocks. So, what you need to guard against is exchange rate becoming a shock amplifier. But so far, we haven’t seen a lot of that,” he added.
The peso plunged to an all-time low of P61.888 versus the greenback on Thursday, breaking its previous record of P61.847 on July 24, Bankers Association of the Philippines data showed.
The Development Budget Coordination Committee expects the peso to hold between P60 and P62 against the dollar until 2030.
At its Aug. 27 meeting, the central bank raised its key policy rate by 25 basis points (bps) for a third consecutive time to 5% as it sees underlying inflation risks from volatile global oil prices, the looming “Super El Niño,” and the potential minimum wage hike. This brought its total hike from April to 75 bps.
The Monetary Board still has two rate-setting meetings left this year on Oct. 22 and Dec. 17.