IMF cuts PH growth outlook on oil shock, spending slump
The International Monetary Fund (IMF) cut its growth forecast for the Philippines, adding to a string of downgrades that price in the weakest expansion since the Global Financial Crisis amid an oil-driven inflation surge and sluggish government spending.
Following a staff visit, the IMF trimmed its estimate for 2026 gross domestic product (GDP) growth to 3.4 percent from 3.9 percent previously. The new projection puts average growth this year below the Marcos administration’s target range of 3.5 percent to 4.5 percent.
The Washington-based fund expects growth to rebound sharply to 5.1 percent next year, though that forecast was also lowered from 5.5 percent previously.
The IMF became the latest institution to temper its growth outlook for the Philippines. Earlier this week, the Asian Development Bank also sharply cut its forecast, projecting that the economy would grow 3.3 percent in 2026 before rebounding to 5.1 percent in 2027.
Disappointing results
At a press conference Friday, Andrea Pescatori, head of the IMF’s visiting staff team, said the revisions reflected weaker-than-expected growth in the second quarter, when the economy expanded by just 2.3 percent.
Growth averaged only 2.6 percent in the first half as the conflict in the Middle East intensified and government spending remained weak following a major corruption scandal. Infrastructure spending contracted 32.4 percent during the period, while household consumption growth slowed to 2.8 percent.
Pescatori said the strong rebound in government spending that had been expected in the second half of the year may not materialize as higher oil prices further weigh on economic activity. The IMF expects inflation to average 5.6 percent this year, well-above the central bank’s 3-percent target.
The fund said price hikes may ease to 4.1 percent next year.
“The Philippine economy is facing a challenging conjuncture,” Pescatori said.
That leaves policymakers with a delicate balancing act: containing inflation without further weighing on an economy. Since April, the Bangko Sentral ng Pilipinas (BSP) has raised its key interest rate by 75 basis points to 5 percent and flagged emerging risks from a severe El Niño episode and possible wage increases.
IMF’s Pescatori said the central bank may deliver another quarter-point rate hike to tame inflation.
“If the shock in the Middle East is more persistent, if the wage price spiral starts to take place and you see second-round effects and core inflation also picking up, that’s when the BSP has to follow the typical direction of action,” he added.
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