The Philippine economy may be among Southeast Asia’s slowest-growing this year as weak domestic demand keeps expansion below its potential, Bank of America (BofA) said.

In a report dated Sept. 8, BofA Global Research maintained its gross domestic product (GDP) growth forecasts for the Philippines at 2.5% for 2026 and 3.5% for 2027.

The 2026 forecast places the Philippines alongside Thailand as the slowest-growing economies among the Association of Southeast Asian Nations (ASEAN) members covered by the report. The two countries are expected to trail Vietnam at 8.2%, Indonesia at 5.3%, Malaysia at 5.2%, and Singapore at 5.1% this year.

If BofA’s projections materialize, the Philippines will miss its growth target for five consecutive years. Economic managers are targeting GDP growth of 3.5%-4.5% this year and 5%-6% annually from 2027 to 2030.

“In second half of 2026, we see GDP growing 2.5% with gentle gains in consumption and the bottoming of investment spending,” BofA China & Asia Economist Helen Qiao and Asia Economist Ting Him Ho said.

“Government spending may help mitigate the effects of the oil shock by aiming subsidies at consumer and transport groups most affected,” they added.

Philippine economic growth fell to a post-pandemic low of 2.3% in the second quarter, bringing first-half growth to 2.6%. Economic managers said last year’s flood control corruption scandal continued to weigh on public construction and investment, while energy shocks linked to the war in the Middle East weakened household spending.

“Domestic demand grew only 0.9% in 2Q26 with net trade providing the lift to overall GDP,” the BofA economists said. “Within domestic demand, private consumption slowed, investments shrunk, and government spending was unable to fully cushion.”

Oxford Economics separately said political risks could weigh on Asia’s growth prospects next year.

“The political backdrop for 2027 is mixed, with risks less favorable in emerging Asia than in developed Asia,” Oxford Economics Head of Asia Economics Louise Loo said in a report on Thursday.

She said the Philippines remains exposed to “procurement, guarantees, and Vice-President Sara Duterte’s impeachment proceedings.” The economy continues to benefit from remittances sent by overseas Filipino workers, which support household incomes, Ms. Loo added.

BofA meanwhile expects the Bangko Sentral ng Pilipinas (BSP) to end its monetary tightening cycle earlier than regional peers because of the Philippines’ sluggish growth. The bank also said the expected inflation peak later this year may be lower than previously anticipated.

“Slower growth and inflation peaking at a lower level may restrain the Bangko Sentral ng Pilipinas (BSP) from aggressive monetary tightening,” Ms. Qiao and Mr. Ho said.

The economists nevertheless warned of inflation risks from renewed oil price spikes, rising rice prices, and a potential 12% increase in the minimum wage.

“Inflation may still peak in the fourth quarter of 2026 but at a rate lower than previously feared,” they said. “Nonetheless, inflation may still be vulnerable to resurgent oil prices, gradually increasing rice prices, and upward pressure that may come from a 12% increase in minimum daily wages.”

Headline inflation eased to a five-month low of 6.1% in August from 6.2% in July, helped by lower food and utility prices. August was nevertheless the sixth consecutive month in which inflation exceeded the central bank’s 3% target, bringing the average headline inflation rate to 5.2% to date.

Ms. Qiao and Mr. Ho said the BSP’s third consecutive 25-basis-point (bp) rate increase last month may have marked the end of its tightening cycle.

At its Aug. 27 meeting, the Monetary Board raised the key policy rate by 25 bps to 5%, an over one-year high, in a preemptive move to contain inflation risks from the looming severe El Niño, a wage increase, and volatile global oil prices. The move brought cumulative rate increases to 75 bps since the BSP began tightening in April.

Following its August policy review, the BSP said inflation would likely peak in the fourth quarter of this year as the “Super El Niño” could disrupt agricultural production and put pressure on food prices. It also flagged risks from volatile oil prices and the now-suspended wage hike.

The BSP expects headline inflation to remain above its target over the next three years, at 6.1% this year, 5.4% in 2027, and 3.3% in 2028.

Oxford Economics’ Ms. Loo said the BSP and Bank Indonesia will likely return to policy easing next year.

“To be sure, regional central banks have delivered around 350 bps of cumulative tightening in 2026, and — with the probable exception of the Philippine and Indonesian central banks — are unlikely to unwind much of it next year,” she said.

Original source

— Katherine K. Chan