In its Asian Development Outlook September 2026, the Manila-based lender projected the Philippine economy to grow by 3.3 percent this year before accelerating to 5.1 percent in 2027.
Both forecasts were lower than ADB’s July projections of 3.8 percent growth for 2026 and 5.3 percent for 2027.
Despite the downgrade, ADB expects the economy to return to a stronger growth path next year, supported by improvements in the services and industry sectors and timely government spending, particularly on critical infrastructure.
External pressures
In a statement, ADB said the prolonged Middle East conflict had weighed on the Philippine economy more heavily than previously expected, contributing to weaker investment in the first half of the year and higher prices of imported fuel and other essential commodities such as fertilizers.
“The economy continues to feel the impact of the Middle East conflict, but business indicators point to expected improvements in economic activity, with the industry sector still looking to expand next year,” ADB Philippines country director Andrew Jeffries said.
Jeffries said timely government spending on planned investments, particularly in social services and critical infrastructure, would be important in helping the economy weather external and domestic shocks.
ADB identified a prolonged Middle East conflict and climate-related disruptions, including a potentially severe El Niño dry spell beginning in late 2026, as major downside risks to the outlook.
Inflation risks
Inflation is expected to average 5.9 percent in 2026, unchanged from ADB’s July forecast, before easing to 4.4 percent in 2027.
The 2027 projection, however, is higher than the 3.9 percent inflation rate forecast in July.
Food prices are expected to remain a major source of inflationary pressure, particularly as El Niño threatens agricultural production.
ADB said services, which account for about 60 percent of the country’s economy and employment, would remain a key growth driver. Manufacturing and public construction are also expected to pick up next year.
Spending push
The government plans to accelerate major infrastructure projects covering transport networks, railways, ports and bridges, as well as facilities for health, education and agriculture.
About one-third of the proposed 2027 national budget is being allocated to social services, including health care, educational assistance, early childhood development, skills training, conditional cash transfers and food vouchers for vulnerable families.
The government is also pursuing measures to cushion agriculture and vulnerable sectors from the Middle East conflict and El Niño.
These include rehabilitating irrigation facilities, increasing investment in water-resource management, distributing drought-resistant seeds and other farm inputs, and improving drought monitoring systems.
Targeted cash assistance, emergency livelihood support, fuel subsidies, public transport fare discounts and assistance to small businesses and heavily affected sectors are also being provided under the Unified Package for Livelihoods, Industry, Food, and Transport program.
ADB, meanwhile, is preparing assistance for the government’s response to the Middle East conflict through a Countercyclical Support Facility. —Ed: Corrie S. Narisma
