By Katherine K. Chan, Reporter

The Philippines is likely to miss its economic growth targets through 2027 as an investment slump and persistently elevated inflation weigh on domestic activity, according to the ASEAN+3 Macroeconomic Research Office (AMRO).

AMRO, the macroeconomic surveillance arm of the Chiang Mai Initiative Multilateralized — the region's currency swap arrangement among ASEAN members plus China, Japan and South Korea — conducts Annual Consultation Visits to member economies to assess macroeconomic and financial conditions and inform its independent policy advice.

In its assessment following its latest visit to the Philippines, AMRO cut its 2026 gross domestic product (GDP) forecast to 3.4% from 4.1% previously. The new projection falls below the government's 3.5%-4.5% target for 2026 and would mark a slowdown from the 4.4% growth recorded in 2025, when a flood control scandal dragged the economy to its weakest performance since the pandemic. That scandal, which centered on alleged irregularities in flood control projects, has weighed on the rollout of public infrastructure spending, a key growth driver under the government's infrastructure agenda.

"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 Choi told a press briefing in Manila on Thursday.

The economy posted a fresh post-pandemic low of 2.3% growth in the second quarter, weaker than the 2.8% expansion in the first quarter and the 5.4% growth a year earlier. First-half growth stood at 2.6%. Consumer spending, which accounts for the bulk of Philippine GDP, is particularly sensitive to price pressures, making the inflation path a central variable in the growth outlook.

For 2027, AMRO expects growth to recover to 4.8%, though slower than its previous 5.5% projection. That figure also trails the government's 5%-6% goal for 2027-2030.

AMRO Chief Economist Dong He said the Philippines is among the economies hardest hit by the Middle East war-driven energy shock, but not necessarily an underperformer in Southeast Asia.

"Well, in terms of growth rate, certainly I think the decline in the growth rate this year, I think the Philippines is probably one of the economies that has suffered the most from this round of energy shock," he said. "But I don't necessarily say that it's an underperformer. It's a reflection of the type of energy mix you have."

The Philippines, a net importer of crude oil, has been under a year-long energy emergency since late March, when the war in the Middle East began. As a net fuel importer, the country's import bill and transport and power costs rise with global oil prices, feeding directly into consumer inflation.

While AMRO views the current slowdown as cyclical, it warned that public investments remaining weaker for longer, together with the expected Super El Niño, could further delay the economic recovery. Super El Niño weather patterns typically bring prolonged dry spells to the Philippines, threatening agricultural output and food prices.

"Over the medium term, structural challenges could pose greater obstacles to the economy's growth potential," it added.

On prices, AMRO trimmed its Philippine inflation forecast to 5.4% from 5.7% for this year, and to 3.8% from 4.1% for 2027, citing easing inflationary pressures across the region. However, Mr. Choi cautioned against renewed price risks arising from lingering uncertainty over continued unrest in the Middle East.

If the forecast holds, inflation would breach the central bank's 3% target, a sharp acceleration from last year's 1.7%.

Headline inflation has cooled for a third consecutive month but has stayed above the Bangko Sentral ng Pilipinas' (BSP) 4% ceiling for five straight months, standing at 6.2% in July. In the first seven months of the year, inflation averaged 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," Mr. Choi said.

Mr. He noted that despite the peso's recent depreciation against the dollar, AMRO sees 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," the chief economist said. The BSP has operated an inflation targeting regime since 2002, with the Monetary Board setting policy to steer headline inflation toward the target.

"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 against the dollar on Thursday, breaking its previous record of P61.847 set on July 24, according to Bankers Association of the Philippines data. The Development Budget Coordination Committee expects the peso to trade between P60 and P62 per dollar until 2030.

According to AMRO, sticky core inflation and a potential de-anchoring of inflation expectations could justify further rate hikes by the BSP.

"Under monetary policy, the BSP should remain data-dependent in terms of monetary policy decision-making," Mr. Choi said. "Further rate hikes would be warranted if core inflation remains elevated and persistent, or inflation expectations show signs of becoming de-anchored."

Core inflation, which excludes volatile oil and food prices, has remained above the BSP's target since March, the first full month of the Middle East war. It nonetheless eased to 4.2% in July from the nearly three-year high of 4.4% in June.

At its Aug. 27 meeting, the central bank raised its key policy rate by 25 basis points (bps) for a third consecutive time, bringing it to 5%, citing underlying inflation risks from volatile global oil prices, the looming "Super El Niño," and a potential minimum wage hike. The move took total hikes since April to 75 bps. Tighter policy, in turn, raises borrowing costs for businesses and households, adding to the drags on investment and consumption that AMRO flagged.

The Monetary Board has two rate-setting meetings remaining this year, on Oct. 22 and Dec. 17.