MELBOURNE- BASED ANZ Research has slashed its growth forecast for the Philippines for 2027 and 2028 as the country’s economy remains sluggish compared to its Asian neighbors in view of weak household and business confidence, elevated inflation and higher interest rates.
The New Zealand-based think tank decimated its 2026 gross domestic product (GDP) growth forecast for the Philippines to 3.9% from 4.7%.
In its latest quarterly report, ANZ Research trimmed its 2027 and 2028 gross domestic product (GDP) forecasts for the Philippines such that for 2027 it shaved off 0.6 percentage point from its initial 5.6 percent GDP forecast, or down to only 5% and for 2028, 5.5%.
“The Philippines’s outlook is more constrained by weak household and business confidence, elevated inflation, and higher interest rates,” ANZ Research, the research arm of Australia-based ANZ Banking Group Limited, underscored in its latest quarterly report.
It also noted that public spending, which “likely bottomed” in the first quarter of 2026, won’t likely see a material recovery until governance issues surrounding infrastructure projects are fully resolved.
Among the Asian economies scrutinized by ANZ Research, only the macro situation in Indonesia and the Philippines are expected to be “less sanguine,” primarily attributed to weak growth and external positions.
It pointed out that monetary tightening will further “impede” growth in these two economies.
Sanjay Mathur, the ANZ Research’s Chief Economist for Southeast Asia and India, said that with the global tech super cycle “more than offsetting” the fallout from the Middle East conflict—which he said also appears to have concluded—“We are raising our 2026 GDP growth forecast for Asia [ex-China, India] to 4.7 percent from 4.2 percent,” reported Business Mirror.
Mathur said upward growth revisions are concentrated in economies with “significant” exposure to the tech cycle—which are Malaysia, Singapore, South Korea and Taiwan, where tech exports are not only growing at an “unprecedented pace” but are also starting to lift plant and equipment investment.
In contrast, Mathur underscored that ANZ Research downgraded Indonesia and the Philippines’s growth forecasts.
Inflation Rates
ANZ Research underscored that only inflation rates in Philippines, South Korea and Vietnam, have so far exceeded official targets.
Moreover, it noted that an uptrend is likely to “intensify” in the coming months due to emerging food price pressures driven by higher fertilizer prices and El Niño-related dry weather conditions, ANZ Research underscored.
“Second-round effects of higher energy prices will also take time to unwind, despite the recent moderation in crude oil prices,” it added.
Fiscal Policy
On fiscal policy, ANZ Research flagged the Philippines as it “stands out with negligible fiscal support, reflecting tight fiscal constraints and legal rigidities in fuel and utility pricing.”
On monetary policy, it underscored that Indonesia and the Philippines are “unique” in the current tightening cycle as their monetary policy dynamics are “not backed by strong growth.”
“The Philippines’s central bank is squarely focused on alleviating inflation despite subpar growth of 2.8 percent year-on-year in Q1 2026. We expect two more rate hikes of 25bp each, translating into a cumulative trough to peak tightening of 100bp,” ANZ Research said.
Growth Outlook
In a televised interview on Monday, Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio Balisacan disclosed that the Development Budget Coordination Committee (DBCC) is aiming to achieve at least 3.5 percent to 4.5 percent economic growth this year following adjustments in government spending and changing economic conditions.
“We hope to achieve at least in 2026, 3.5 to 4.5 with all these changes,” Balisacan said.
ANZ Research said this could be the weakest post-pandemic growth this year as last year’s corruption controversies continue to weigh on confidence, compounded by accelerating inflation and rising interest rates amid the Middle East conflict.
Balisacan on Monday said the economy may grow by 3.5 to 4.5% this year, due to underspending and the fallout from the US-Iran war, Business World noted.
ANZ’s projections are below the government’s original targets of 5 to 6% for this year and 5.5 to 6.5% next year.
The Development Budget Coordination Committee has yet to release revised macroeconomic assumptions.
Mathur noted that the weaker outlook also reflects expectations that lingering governance issues from last year’s flood control mess will prevent any significant rebound in public spending.
“Public spending likely bottomed in (the first quarter of) 2026, but a material recovery is unlikely until governance issues surrounding infrastructure projects are fully resolved,” he said.
In the first quarter, government spending grew by 3.22% year on year to P1.491 trillion from P1.444 trillion. It slightly improved at end-April after rising by 5.12% to P1.996.2 trillion from P1.899 trillion a year ago.
In late 2025, a flood control corruption scandal involving Public Works officials, private contractors and lawmakers took a major toll on public and business sentiment and dampened investments and government spending. This dragged the economy to its weakest growth since the COVID-19 pandemic at 4.4% last year from 5.7% in 2024.
“The Philippines stands out with negligible fiscal support, reflecting tight fiscal constraints and legal rigidities in fuel and utility pricing,” Mathur said.
Still, the ANZ economist said Asian economies, including the Philippines, are unlikely to overshoot their deficit ceilings this year as “higher subsidy outlays are likely to be compensated by lower public capital spending in most economies.”
Based on the latest Treasury data, the Philippines’ fiscal gap stood at P324.1 billion as of April, 14.44% narrower than the P378.7-billion deficit posted in the same period last year.
The National Government set its fiscal deficit ceiling at P1.611 trillion or 5.3% of GDP this year.
Mathur also flagged the Philippines’ weak external position relative to its Asian peers.
“External balances remain broadly manageable, with the exception of Indonesia and the Philippines… The BoP (balance of payments) problem is more acute in the Philippines where the 2026 current account deficit is officially forecast at 4%,” he said.
The central bank projects the country to post a $20.3-billion current account gap or -4% of GDP this year, which, if realized, would be wider than the $16.3-billion deficit or -3.3% of GDP recorded in 2025.
For 2027, ANZ forecasts inflation to cool to 4.8%, before slowing further to 4.1% in 2028.
Amid this, Mathur said the BSP could deliver two more 25-basis-point (bp) hikes this year to bring the benchmark interest rate to 5.25% before standing pat until the second half of 2028.
“The Philippines’ central bank is squarely focused on alleviating inflation despite sub-par growth of 2.8% year on year in Q1 2026,” Mathur noted.
The BSP has so far delivered a total of 50 bps in hikes since it started its tightening cycle in April, at the height of the United States and Israel’s war on Iran.
The BSP raised key borrowing costs by 25 bps to 4.75% for a second straight meeting last week, noting persistent inflationary pressures as elevated fuel and fertilizer prices keep feeding into the costs of other commodities.
If the central bank hikes by another 50 bps, as Mathur expects, the policy rate will hit an over one-year high of 5.25%, Business World explained.
BSP Governor Eli M. Remolona, Jr. has penciled in a third straight 25-bp increase at their August meeting, and left the door open for further measured tightening to help inflation return to their 3% target.
The BSP now projects inflation to average 6.4% this year, 4.5% in 2027, and 3.1% in 2028.
The Monetary Board is scheduled to hold three more regular policy reviews this year on Aug. 27, Oct. 22 and Dec. 17.