THE Philippine economy is expected to slow sharply this year as weaker domestic demand, subdued public investment and higher inflation weigh on growth, according to the Asean+3 Macroeconomic Research Office (Amro).
Amro projected Philippine economic growth at 3.4 percent in 2026, down from 4.4 percent in 2025, before recovering to 4.8 percent in 2027.
“Growth this year will be weighed down by weaker private consumption amid higher inflation and subdued investment,” Amro Group head and lead economist Jinho Choi said in a statement. He added that a gradual recovery in public construction in the second half and resilient exports should provide some support.
Inflation outlook
Inflation, meanwhile, is expected to surge to 5.4 percent this year, from 1.7 percent in 2025, before easing to 3.8 percent in 2027.
Amro attributed the higher inflation outlook to global oil prices remaining above pre-conflict levels following the Middle East conflict, along with second-round effects on food, services and other non-energy items.
The regional economic surveillance body said the Philippines also faces a wider current account deficit due to higher energy import bills. The peso has weakened amid heightened external pressures, although the country’s external buffers remain adequate.
Amro said monetary policy has been tightened in response to rising inflation, while the banking sector remains sound and resilient despite emerging asset-quality pressures in some sectors.
Fiscal deficit
The fiscal deficit is expected to narrow, but largely because of a sharp contraction in capital spending. Meanwhile, the government’s medium-term fiscal consolidation path has been recalibrated to a slower pace amid external challenges.
Amro identified higher global energy prices as the most immediate risk to the economy, with potential effects on inflation, growth and the external balance.
Extreme weather, including the possible emergence of a very strong El Niño, could also disrupt agricultural production, push up food prices and weigh on economic activity. A delayed or weaker-than-expected recovery in public investment could further dampen growth.
Over the medium term, Amro flagged climate change and dependence on imported fossil fuels as key structural vulnerabilities. Rapid adoption of artificial intelligence (AI) is also increasing competitive pressures on the information technology and business process management (IT-BPM) sector, although it could create opportunities for the industry to move into higher-value services.
Recommendations
Amro recommended restoring well-governed infrastructure spending while maintaining medium-term fiscal consolidation. Monetary policy should remain data-dependent, with further rate increases warranted if core inflation remains elevated or inflation expectations become unanchored.
The group also urged stronger financial-sector monitoring and structural reforms to help the economy adapt to technological change.
It said the Philippines should enable the semiconductor industry to move into higher-value activities and support the IT-BPM sector’s shift toward knowledge-intensive and AI-complementary services.
This would require stronger digital infrastructure and continued investment in workforce upskilling, reskilling and digital capabilities.
Amro also called for stronger energy security through a more diversified energy mix and reliable power supply, measurable climate-resilience initiatives and improved flood-control governance across the public investment cycle.
The assessment followed Amro’s annual consultation visit to the Philippines from Aug. 7 to 27, 2026, led by Choi. Amro director/chief executive Yasuto Watanabe and chief economist Dong He also joined key policy meetings with Philippine authorities. / KOC